VICTORY THROUGH PRODUCTION: ARE LEGACY
COSTS OF WAR SCUTTLING THE “GOCO MODEL”?
Robert M. Howard and Shawn T. Cobb
I. Introduction...................................................................................
II. The GOCO Program ...................................................................
A. GOCO Program: Risk and Reward ......................................
B. GOCO Facility Organization and Construction..................
C. The GOCO Program Today ................................................
D. Three 1990s Reports from the GAO on GOCO Facility
Cleanup Costs Recommend “Cost Sharing” with Former
Contractors .............................................................................
III. Under the GOCO Model, the U.S. Government Consistently
Limited the Upside Profit Potential on the Ground GOCO
Contractors Operated Risk-Free ..................................................
A. Statutory Limitations Imposed “Hard Caps” on Military
Contract Profits......................................................................
B. The Renegotiation Act Provided the Government with
Authority to Reduce Profits Well Below the Statutory Caps
C. Standard Government Contracts Included the Combination
of Statutory “Hard” Caps and the Renegotiation Act’s
“Soft” Caps .............................................................................
D. The Government’s Choice and Use of Cost-Plus-Fixed-Fee
Contracts Were Calculated to Limit the Contractors’
Facility-Related Liabilities .....................................................
E. The Government Applied Pressure in Unconventional
Ways to Control GOCO Facility Operations and Profits ..
IV. The GOCO Model: Standard Government Contracting
Provisions.......................................................................................
A. Overview .................................................................................
B. Contract Standardization .......................................................
C. GOCO Contract Types.........................................................
D. Facilities Contracts.................................................................
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Robert M. Howard ([email protected]) chairs the San Diego-based Environment,
Land & Resources Department of Latham & Watkins LLP. Shawn T. Cobb (shawn.
[email protected]) is a senior associate at the firm. This article is dedicated to the memory of
George H. Howard, an Army veteran; Edwin Fletcher Woodhead, a Navy veteran; and
U.S. veterans from World War II through today.
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1. Facilities Contracts: Design, Construction, Inspection,
and Approval .....................................................................
2. Facilities Contracts: Title .................................................
3. Facilities Contracts: Allocation of Risk............................
4. Facilities Contracts: Taxes................................................
5. Other Facilities Contracts ................................................
E. Procurement Contracts..........................................................
1. Procurement Contracts: “Government Property”
Provision ............................................................................
2. Procurement Contracts: Insurance; Liability to Third
Persons...............................................................................
3. Design, Construction, Inspection, and Approval ............
4. Taxes..................................................................................
F. Government Contracts Reflect a Negotiated Balancing of
Risk and Profit so Contractors Would Not Have Limited
Upside Potential and Unlimited Downside Liability...........
V. Three Pathways for Recovery ......................................................
A. Pathway No. 1: CERCLA Allocation Litigation .................
1. Cleanup Costs Are a “Cost of War”................................
a. Cadillac Fairview/California v. Dow Chemical Co..........
b. FMS Corp. v. United States...........................................
c. Shell Oil Co. v. United States.........................................
d. Exxon Mobil Corp. v. United States ...............................
2. Under Federal Case Law, the Government Is a Potential
CERCLA “Owner” and “Arranger,” Even at 100 Percent
Contractor-Owned Facilities................................................
3. Partial Ownership of Manufacturing Equipment May
Independently Make the Government Liable as a
CERCLA “Owner” ...........................................................
B. Non-GOCO CERCLA Liability Cases Relied Upon by the
United States ..........................................................................
1. The United States v. Bestfoods CERCLA “Operator”
Liability Standard is Unwarranted in GOCO Contexts.
2. U.S. Regulatory Power of Markets Does Not Make the
United States a CERCLA Operator ................................
3. “Buyer-Seller” Cases .........................................................
4. Privately Owned Shipyard Cases Are Divided ................
5. “Failure in the Evidence” CERCLA Liability Cases ......
6. U.S. Funding to Temporarily Convert an Underutilized
Private Automobile Factory for Military Weaponry Does
Not Make the United States a CERCLA “Operator”....
7. TDY Holdings, LLC v. United States..................................
8. Summary of the Non-GOCO CERCLA Cases Favored
by the United States .........................................................
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Legacy Costs of War and the “GOCO Model”
C. Pathway No. 2: Direct Contractor Reimbursement Under
Previously Performed Government Contracts .....................
1. Contract Dispute Act Reimbursement Cases: Recovery
of Later-Arising CERCLA Liabilities Under the
Contract Settlement Act of 1944 .....................................
2. Contract Dispute Act Reimbursement Cases: Contract
Recovery of Later-Arising CERCLA Liabilities Under
the “Taxes Clause”............................................................
D. Pathway No. 3: “Allowable” Indirect Reimbursement via
Overhead on Current and Future Contracts ........................
1. Legal Standard for Allowability .......................................
2. Applicable Case Law on Environmental Cost
Allowability........................................................................
VI. Lockheed v. United States: A Test Case on the Interaction of
“Indirect” Overhead and Allowability Versus “Direct”
CERCLA Reimbursement ............................................................
A. Background Facts of Lockheed I and II ..................................
B. Lockheed I (Double Recovery Defense)..................................
C. Lockheed II (CERCLA Allocation) .........................................
D. The Lockheed I and Lockheed II Appeal..................................
VII. U.S. Government GOCO Settlements (Post-1997)....................
A. Government Funding of GOCO Facility Cleanups
(Pre-1997) ...............................................................................
B. The Handful of Post-1997 Environmental Cost-Allocation
Agreements for GOCO Plants Still Favor Contractors.......
VIII. Conclusion.....................................................................................
Appendix A: DoD GOCO Settlements and Legacy
Environmental Cleanup Allocations.............................................
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I. INTRODUCTION
The costs of World War II and the wars of the twentieth century that followed continue to accrue today. The costs will continue to accrue for decades to come, well beyond the lifetimes of those who fought the battles
and manned the arsenals. The costs take the form of expensive weaponry
and lengthy site remediation. Such is the environmental legacy of the United
States’ early generation industrial practices during the course of history’s
most explosive industrial expansion.
U.S. defense strategy in World War II—and for decades thereafter—
hinged upon a philosophy of “victory through production,” calling for the
“production of war supplies in proportions previously unimagined.”1 The
1. See Lichter v. United States, 334 U.S. 742, 763, 765 (1948) (upholding the Renegotiation
Act while noting the “results amply demonstrated the infinite value of that production in winning the war”).
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government could not do it alone. Under conditions of extreme national
duress, “Congress sought to do everything possible to retain and encourage
individual initiative in the world-wide race for the largest and quickest production of the best equipment and supplies. It clung to its faith in private enterprise.”2 Private industry demanded in return nothing more than a fair and
durable allocation of risk. The model worked.3
The same national defense program that achieved “victory through production” from World War II through the Cold War is now fading into insignificance. Why would the U.S. government allow such an unthinkable
outcome? The short answer is because the costs of past wars have become
burdensome and distasteful to an increasingly debt-ridden U.S. government.
The costs of past wars have reached the point where it is now politically
tolerable (although strategically short-sighted) to fault the very contractors
that had been instrumental in achieving victory. In so doing, the U.S. government is breaking faith with a “grand bargain”4 it formed with private industry, which has acted as a cornerstone of defense policy for the last seven
decades. That choice will have dangerous long-term strategic consequences.
Going forward, no rational contractor can reasonably rely upon any U.S.
government contract commitment purporting to hold harmless contractors
in exchange for their work––and accept, until completion and without renegotiation, all the “costs of war.” Today, the U.S. government is aggressively reneging on past contracts in favor of reallocating risks it once assumed in
order to obtain lower-cost military products.
This article opens with a discussion of the historical basis for the development of the Government-Owned, Contractor-Operated (GOCO) model and
the U.S. government’s standard contract rules as they relate to environmental costs. With this historical context, the article continues by exploring the
three primary paths available to contractors to obtain reimbursement for environmental costs stemming from our country’s legacy of war: (1) direct reimbursement through the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); (2) direct reimbursement through
government contracts performed long ago; and (3) indirect reimbursement
through the allowability of environmental costs on existing government contracts. Finally, the article concludes by examining the history of past U.S.
2. Id. at 768.
3. ARTHUR HERMAN, FREEDOM’S FORGE: HOW AMERICAN BUSINESS PRODUCED VICTORY IN
WORLD WAR II (Preface) (2012) (noting U.S. industry built “two-thirds of all Allied military
equipment used in World War II,” including 86,000 tanks, 2.5 million trucks, 8,800 naval vessels, and 41 billion rounds of ammunition). The U.S. aircraft industry built a staggering 232,000
airplanes between 1940 and 1944 (159 per day). NORTH AMERICAN AIRCRAFT, INC., ANNUAL REPORT 4 (1944) (documenting that North American produced 29,000 planes during that four-year
period, or 12.5% of the United States’ airplane output); accord NORTH AMERICAN AIRCRAFT, INC.,
ANNUAL REPORT 4–5 (1945) (documenting that 304,400 aircraft were built in the United States
from 1939 to 1945, averaging 140 per day).
4. Christopher H. Marraro, Shell v. U.S.: Court Holds Government to Its World War II-Era
“Grand Bargain” with Aviation Gas Refiners, LEGAL BACKGROUNDER (Wash. Legal Found.,
Wash., D.C.), July 11, 2014, at 1–2.
Legacy Costs of War and the “GOCO Model”
263
settlements at GOCO facilities and the test-case litigation between the government and Lockheed Martin relating to allowability and double recovery
for environmental contamination at three industrial sites in California.
II. THE GOCO PROGRAM
World War II brought immense risk to the United States and threatened
to overwhelm its defense manufacturing capability. To address this threat,
the U.S. government devised a strategically vital defense program that
teamed government and industry to mobilize the United States’ immense industrial potential. This program is commonly known as the GOCO program. As stated by a senior advisor to President Franklin D. Roosevelt at
the beginning of World War II, “The government can’t do it all. . . . The
more people we can get into this program[,] . . . the more brains we can
get into it, the better chance it will have to succeed.”5
Pursuant to the authority of the First War Powers Act of 19416 and later
the Defense Industrial Reserve Act of 1948,7 the U.S. government began to
construct and operate GOCO facilities across the nation. The strategic purpose of the GOCO program was to avoid the problem of sudden mobilization and demobilization experienced after World War I and to maintain at a
national level an “essential nucleus of Government-owned industrial plants
and an industrial reserve of machine tools and other industrial manufacturing equipment . . . for immediate use to supply the needs of the armed forces
in time of national emergency or in anticipation thereof.”8
The reach of the GOCO program was significant. For all intents and purposes, defense contractors found themselves a few steps short of nationalization and becoming an “adjunct of the Federal Government, operated in its
behalf.”9 Defense contractors informed their stockholders that profits
would henceforth become secondary to the war effort.10 Certain non-defense
industries, such as the automobile industry, were practically nationalized as
well, compelled to stop commercial automobile production and completely
5. HERMAN, supra note 3, at 92 (quoting the former head of General Motors, William
Knudsen).
6. The First War Powers Act of 1941 was signed into law less than two weeks after the Pearl
Harbor attack and expanded the executive branch’s authority to better manage federal agencies
and the war effort. First War Powers Act of 1941, Pub. L. No. 77-354, §§ 1, 201, 55 Stat. 838,
838–39 (1941).
7. 10 U.S.C. § 2535 (2012).
8. Id. § 2535(a)(1).
9. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 3 (1943) (reporting that Douglas Aircraft
produced one-sixth of the total U.S. aircraft output in 1942 and increased production over
2770% from 1939 levels, but profits plunged from eighteen million dollars before the war to
six million dollars for record sales of one billion dollars (0.6%) because it was the company’s
“duty to its Government in time of war”).
10. LOCKHEED AIRCRAFT CORP., TENTH ANNUAL REPORT OF THE PRESIDENT (1941) (“Your
company believes it has the responsibility, along with all private American industry, to produce
the tools with which to win the war at the lowest possible cost to the people.”).
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retool.11 Others walked the line.12 On the whole, U.S. industry openly committed itself to “doing everything within [its] strength to further the nation’s
war effort” and to accept sacrifice in the face of an “all-encompassing task of
winning a great war.”13
The GOCO program was premised on the concept of mutual promises
between the U.S. government and industry, particularly with respect to
the risks inherent in defense production. As one defense contractor described, “[t]he national emergency defense program, with its vast and hasty
expansion, its necessary sacrifices and its emphasis on speed of production
regardless of cost, have brought many unavoidable and unpredictable hazards. . . .”14 Industry maintained that as part of this historical grand bargain,
contractors’ collective sacrifices must not be “penalized and broken” as a
consequence of their all-out devotion to the nation’s war effort.15 The government needed to do its part in preserving “strong [] industry, capable of
rapid [post-war] expansion.”16
A. GOCO Program: Risk and Reward
The GOCO model grew incrementally from “experimental” to large scale
in very little time because it carefully balanced the risks and rewards of defense manufacturing—which was vital to manufacturers unfamiliar with military products and contracts.17 On the one hand, the U.S. government was
able to secure a number of strategic benefits, including exceptionally lowcost products, through the GOCO program. On the other hand, the U.S.
government expressly retained the risk of facility damages or loss as a cost
of doing business. Low profits are fair, the government would theorize, because there is no downside risk to the GOCO contractor.
The GOCO program benefited the U.S. government immensely through
decades of war. It ensured immediate manufacturing capacity during national
defense emergencies and previously unheard-of production efficiencies. The
U.S. government’s call for 50,000 military aircraft per year in the early
11. During World War II, the U.S. government, through its War Production Board, ordered
the reallocation of the entire automobile industry toward the construction of airplanes and
weaponry. CHARLES K. HYDE, ARSENAL OF DEMOCRACY: THE AMERICAN AUTOMOBILE INDUSTRY
IN WORLD WAR II 25–33 (2013). General Motors created the Eastern Aircraft Division and
built Grumman “Wildcat” fighters and “Avenger” torpedo planes and became the largest producer of naval aircraft during the war. See DONALD M. PATTILLO, PUSHING THE ENVELOPE:
THE AMERICAN AIRCRAFT INDUSTRY 138–39 (1998).
12. See, e.g., Act of June 28, 1940, Pub. L. No. 76-671, § 8(b), 54 Stat. 676, 680 (authorizing,
under certain conditions, the Secretary of the Navy to nationalize and operate “any existing
manufacturing plant or facility necessary for the national defense”).
13. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO STOCKHOLDERS 1 (1941).
14. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 7 (1940).
15. LOCKHEED AIRCRAFT CORP., TWELFTH ANNUAL REPORT OF THE PRESIDENT 3 (1943).
16. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 8 (1945).
17. The earliest government contracts to rearm the nation after World War I were called
“educational orders,” where small contracts were issued to allow contractors to use government
property for manufacturing and to “learn how to make war goods at no risk to the company.”
HYDE, supra note 11, at 5.
Legacy Costs of War and the “GOCO Model”
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1940s when, in a good year, approximately 3,600 aircraft could be produced by
U.S. industry, was called “wishful thinking.”18 Shortly thereafter, the U.S.
government thanked one defense contractor for achieving a breathtaking output of more than 500 planes in one month—and immediately added that it
“confidently expect[ed] [it to] increase [its] production further.”19
The GOCO program also allowed the U.S. government to obtain its military weapons at a dramatically lower cost.20 In many cases, the GOCO program’s cost efficiencies were the only economically viable way for the government to obtain certain weapons.21 Contractors operated GOCO facilities
either rent-free or at very low rents to keep the costs of goods low.22 Defense
contracts also dramatically limited the available profits to the contractor—and
even authorized the U.S. government to “renegotiate” profits after the fact to
reduce earnings on a program-by-program basis.23 In fact, contractor profits
were reduced, regularly over contractor objections, to razor-thin margins at
GOCO facilities on the theory that contractors operated virtually “risk
free.”24 In exchange for the limited upside profit potential for contractors,
the U.S. government contractually assumed the downside risk of GOCO facility damages.25 U.S. government contracts typically contained the following
“Liability for Facilities” or “Government Property” clause: “The Contractor
18. Id. at 12.
19. Letter from Frank Knox, Sec’y of the Navy, to Leon A. Swirbul, Exec. Vice President,
Grumman Aircraft Engineering Co. ( Jan. 11, 1944).
20. See, e.g., N. Am. Aviation, Inc. v. Renegotiation Bd., 39 T.C. 207, 218 (1962) (The fact
that the contractor was to have the right to use Government facilities free of cost in the performance of some of its contracts was taken into account by the negotiators when the contracts
were negotiated.”).
21. See R. ELBERTON SMITH, THE ARMY AND ECONOMIC MOBILIZATION 497 (1959) (stating that
Government-Owned, Contractor-Operated (GOCO) facilities were highly specialized and the
only economically viable way for the government to obtain various military weapons).
22. To the extent a contractor paid rent, the revenue was used to maintain the GOCO facility
itself.
23. Shell Oil Co. v. United States, 751 F.3d 1282, 1287 (Fed. Cir. 2014) (noting that the
“base price [of the contracts] was calculated with the goal of permitting an estimated profit of
between 6% and 7%” and “[p]rofits were further subject to the Renegotiation Act of 1942,
which required contractors to repay excess profits to the Government”).
24. See Major Mark J. Connor, Government Owned-Contractor Operated Munitions Facilities: Are
They Appropriate in the Age of Strict Environmental Compliance and Liability?, 131 MIL. L. REV. 1, 6
(1991) (“From its inception, the GOCO concept has provided a tradeoff for munitions plant
contractor-operators. In return for a lower level of profit than otherwise might be expected, the contractors received virtual immunity from risks resulting from munitions manufacturing operations.”).
The degree of risk assumed by the contractor should influence the amount of profit or fee
a contractor is entitled to anticipate. For example, where a portion of the risk has been shifted
to the Government through cost-reimbursement or price redetermination provisions, unusual
contingency provisions, or other risk-reducing measures, the amount of profit or fee should be
less than where the contractor assumes all risk.
Newport News Shipbuilding & Dry Dock Co., ASBCA No. 6565, 71-1 BCA ¶ 8,705, at
40,434.
25. Shell Oil Co., 751 F.3d at 1287 (“The arrangement between the Oil Companies and the
Government was a cooperative endeavor in which the Oil Companies worked to achieve the
Government’s goal of maximizing avgas production and the Government assumed the risks of
such increased production.”).
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shall not be liable for any loss of or damage to the Facilities, or for expenses
incidental to such loss or damage.”26 Additionally, U.S. government contracts
typically mandated that GOCO contractors must not obtain facility-related
insurance because the U.S. government had assumed all liabilities and elected
to self-insure, thus reducing the cost of goods produced at the GOCO facility
even further.27
“Victory through production” presented dire risks to U.S. industry. The
U.S. government would be positioned as the sole customer to an entire “captive” industry, and the threat of immediate contract termination by that industry’s sole customer upon the conclusion of war literally threatened these
contractors’ survival.28 Industry nonetheless held modest and reasonable expectations: “In return, the Government, too, has an obligation to industry. It
has a duty to remove by legislation and prompt equitable action all obstacles
and uncertainties in the path of restoration” of its contractors once the wars
ended.29 Among other obligations, that meant assuming the costs of war.
U.S. industry accepted the urgency and sacrifice as a fundamental duty.
Other considerations were secondary to the prosecution of the war.30 The
historical mindset of the time, as one contractor described it, was “characterized by intensive efforts to deliver the highest possible number of aircraft
possessing the greatest possible military utility at the lowest possible cost
to the Government.”31 Industry would be “devoted solely to war production
as long as the nation’s military welfare may require,”32 and “[e]very . . .
worker in the factories and in the offices, worked with but a single thought
and determination, to turn out each day every plane possible.”33 Industry
agreed to “subordinate to defense production all conflicting activities as rapidly as it becomes established that our national welfare demands such sacrifices.”34 Commercial opportunities would be forfeited entirely and international work eliminated altogether, unless it otherwise served the defense
purposes of the United States and its allies.35
26. 32 C.F.R. § 7-702.18 (1979). See, e.g., U.S. Dep’t of Navy, Facilities Use Contract,
N00019-69-C-9032, at 1 (Apr. 1, 1969) [hereinafter Contract No. N00019-69-C-9032]; U.S.
Dep’t of Navy, Facilities Use Contract, N00019-82-E-9033, at 3-5 (Sept. 30, 1982) [hereinafter
Contract No. N00019-82-E-9033]; U.S. Dep’t of Navy, Contract for Plant Facilities, NOa1031, at 6 (Nov. 16, 1943) [hereinafter Contract No. NOa-1031].
27. See, e.g., U.S. Dep’t of Navy, Letter of Intent No. NOa(s)-2419, at 13; U.S. Dep’t of
Navy, Letter of Intent No. NOa(s)-846, at 23–24; U.S. Dep’t of Navy, Letter of Intent No.
NOa(s)-2676, at 21–22 (Dec. 29, 1943).
28. See DOUGLAS AIRCRAFT CO., INC., supra note 9, at 3–4.
29. Id. at 3.
30. See id.; see also LOCKHEED AIRCRAFT CORP., NINTH ANNUAL REPORT OF THE PRESIDENT 2
(1940) (stating Lockheed “has attempted to place its plant, its personnel, and its resources at
the service of the government’s defense program”).
31. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 1 (1943).
32. Id.
33. GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT (1942).
34. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 3 (1940).
35. See HERMAN, supra note 3, at 162 (noting that the United States had ordered the complete
cessation of car and truck manufacturing as of January 15, 1942).
Legacy Costs of War and the “GOCO Model”
267
B. GOCO Facility Organization and Construction
To implement the GOCO program, the U.S. government needed to fund
and build hundreds of industrial plants under Emergency Plant Facilities and
Defense Plant Corporation contracts, and it solicited major manufacturers to
participate in national defense manufacturing.36 At the height of the U.S.
government’s GOCO program in the 1940s, approximately 1,200 GOCO
facilities operated across the country.37 The pace of construction became
so furious that the United States regularly built major GOCO facilities in
only six months, constructed aircrafts literally during and in parallel with
plant construction, and even constructed federally owned plants on privately
owned property.38 The U.S. government used various funding mechanisms,
such as initial funding from a private bank coupled with reimbursement of
contractors over sixty months (typical of Emergency Plant Facilities contracts) or direct Defense Plant Corporation funding,39 to build the GOCO
war plant inventory.
GOCO facilities are not military bases, although major facilities historically
had permanent military inspection personnel located onsite.40 GOCO facilities are unique creatures of emergency presidential orders and special congressional legislation.41 GOCO facilities are partially or wholly owned federal
industrial plants built with government funding and operated by selected contractors.42 However, significant parts of the facilities, such as buildings or real
estate, could be privately owned by contractors.43 The urgency to construct
36. SMITH, supra note 21, at 476, 484–86, 494.
37. See S. REP. NO. 80-1409, at 3 (1948).
38. The time between signing a contract and building a GOCO plant often ran from four to
six months. HYDE, supra note 11, at 38; NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO
STOCKHOLDERS 9 (1940) (reporting that a one million square-foot GOCO was constructed in
Dallas in less than six months, and the first aircraft was actually delivered upon the first day
that the factory was formally opened); NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO
STOCKHOLDERS 4 (1941) (reporting that a GOCO was built in Kansas City in less than twelve
months between 1940 and 1941). Four of the five major production plants built at Bethpage
in the 1940s using emergency plant facility contracts were on 500 acres then owned by Grumman. See HYDE, supra note 11, at 38.
39. Space Gateway Support, LLC, ASBCA Nos. 55608, 55658, 13-1 BCA ¶ 35,232, at
172,906–08.
40. The Bethpage, New York, GOCO had approximately 200 uniformed and civilian Navy
inspectors stationed onsite for decades. NAVPLANTREP—The Navy’s Man at Bethpage, GRUMMAN PLANE NEWS, July 13, 1973, at 8.
41. The first GOCOs were built under the combined authority of (1) the First War Powers Act
of 1941, Pub. L. No. 77-354, 201, 55 Stat. 838 (1941); (2) Executive Order No. 9001, 3 C.F.R.
§ 1941 Supp. 330 (1942); and (3) Executive Order No. 9264, 3 C.F.R. § 1938 Cum. Supp.
1223 (1943).
42. Belinda Snyder & Jeffery W. Thomas, GOGOs, GOCOs, and FFRDCs . . . Oh My! 1 (Fed.
Lab. Consortium for Tech. Transfer, 2014), https://www.federallabs.org/index.php?download=
1FLcfl491 [https://perma.cc/2R3C-ULMD].
43. U.S. Dep’t of Navy, Contract for Sale of Facilities, Noa-5661, at 2–3 (Dec. 18, 1947)
[hereinafter Contract No. Noa-5661].
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manufacturing space as quickly as possible during World War II occasionally
led to mixed-ownership or “scrambled” GOCO facilities.44
Some GOCO facilities were so large that the U.S. government operated them
with dozens of contractors;45 other GOCO facilities had a single contractor over
their entire operational history.46 Individual U.S. Department of Defense (DoD)
branches typically controlled their respective GOCO facilities. The U.S. Army
operated separately numbered Army Ammunition Plants (AAPs), the U.S. Navy
operated either Naval Industrial Reserve Ordnance Plants (NIROPs) or Naval
Weapons Industrial Reserve Plants (NWIRPs), and the Air Force operated separately numbered Air Force Plants (AFPs).47 Other federal agencies occasionally controlled other uniquely named U.S. plants.
The construction of many GOCO facilities occurred during the 1940s
and 1950s, but their useful lifespan had limits—GOCO facilities grew increasingly inefficient with age and suffered from a lack of government maintenance and investment.48 By 1994, over ninety percent of the United States’
GOCO facilities had been eliminated, and approximately seventy-eight
GOCO facilities remained.49 The Army commander of one aging GOCO
facility lamented that DoD’s preference for the use of newer privately
owned commercial facilities had left the remaining GOCO contractors at
a competitive disadvantage because the U.S. government’s over-reliance
on private facilities had diverted resources away from maintaining strategically vital GOCO facilities.50 Only a handful of GOCO facilities remain
active today.51 Most GOCO facilities have been closed and either sold or
44. The facilities at Allegany Ballistics Laboratory (ABL) in West Virginia and Bethpage,
New York, were highly integrated mixed-ownership GOCO facilities where the contractor
and the U.S. government owned various parcels of land. See, e.g., Letter from Henry Pass, Director, Real Estate Div., Navy Facilities Eng’g Command, to Albert Wilson, Chief, Real Property Div., Gen. Servs. Admin. (Sept. 7, 1971) (calling the Bethpage GOCO a “scrambled” mixed
ownership facility).
45. Air Force Plant (AFP) 42 in Palmdale, California, is still active and had over one dozen
contractors operating over eight different sites within the large complex.
46. The Naval Weapons Industrial Reserve Plant (NWIRP) in Bethpage, New York, had a
single contractor—Grumman Aircraft Engineering Company and its successors—from 1941
until facility closure and transfer in 2008 to Nassau County for redevelopment purposes.
47. See generally U.S. GEN. ACCOUNTING OFF., GAO/NSAID-94-231, ENVIRONMENTAL
CLEANUP AT DOD: INCONSISTENT SHARING ARRANGEMENTS MAY INCREASE DEFENSE COSTS 3
(1994) [hereinafter INCONSISTENT SHARING ARRANGEMENTS] (discussing each U.S. Department
of Defense’s (DoD) GOCO plants); U.S. ARMY, JOINT MUNITIONS COMMAND, HISTORY OF AMMUNITION INDUSTRIAL BASE 13, 24, 65 (2010).
48. See COLONEL BENJAMIN M. NUTT, EVOLVING THE ARMY’S GOVERNMENT-OWNED
CONTRACTOR-OPERATED (GOCO) FACILITIES BUSINESS MODEL 1, 5–6 (2011).
49. INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at 3–4.
50. The Army commander of the Iowa Army Ammunition Plant witnessed the decline and
loss of much of this Iowa GOCO’s munitions production capacity because of the government
policy in favor of commercial production facilities and the loss of the DoD’s ability to surge
the munitions industrial base in time of future national emergency. See NUTT, supra note 48,
at 4–5.
51. See generally Norman Black, Pentagon Ponders Sale of Defense Plants, ASSOCIATED PRESS
(Oct. 25, 1986), http://www.apnewsarchive.com/1986/Pentagon-Ponders-Sale-of-DefensePlants/id-f70cd8e67df8612b1438f7b8c841e712 [https://perma.cc/D4BF-69EY].
Legacy Costs of War and the “GOCO Model”
269
redeveloped,52 but many more have legacy contamination that still needs to
be remediated.53
C. The GOCO Program Today
Today, the GOCO program is a shell of its former self. The program
continues to wither because the U.S. government has shifted its procurement
dollars for weaponry and ammunition to more efficient commercial facilities
and away from its aging GOCO inventory.54 Whereas it was once cheaper
for GOCO contractors to use low-rent or no-rent GOCO facilities, the
costs of maintaining these aging facilities have become a significant competitive burden.55 Even worse, the U.S. government is suing its contractors, to
the extent they have survived the ravages of competition into the jet age,56 in
an effort to shift the costs of past wars onto the innovative makers of its
weaponry. The DoD is thereby smashing any hope of resurrecting a once
vital defense program in a future emergency.
This dramatic government turnaround and targeting of its principal contractors is not a consequence of war profiteering or unlawful conduct. It has
nothing to do with the terms of government contracts. In fact, the government
actions plainly contravene the terms of its past contracts with its defense manufacturers.57 It is because building yesterday’s warplanes, tanks, bombs, and
weapons invariably caused chemicals to be released into the environment
given the industrial standards of the time,58 and the legacy contamination
still needs to be addressed today. That is a highly and increasingly expensive
undertaking.59 Compounding matters, a different generation now oversees
military and defense policy planning, and the lessons of history have faded.
Instead of treating environmental cleanup as an ongoing “cost of war” to
be assumed by the public at large, the U.S. government has chosen a different path forward with long-term adverse strategic consequences. The U.S.
government contends that its available bench of defense contractors (again,
to the extent they have survived) should assume enterprise-threatening
52. See id. (reporting that the DoD asked military departments to appraise defense manufacturing plants with eye toward selling to private industry).
53. See U.S. GOV’T ACCOUNTABILITY OFF., GAO-93-77, ENVIRONMENTAL CLEANUP: OBSERVATIONS ON CONSISTENCY OF REIMBURSEMENTS TO DOD CONTRACTORS 17, 19 (1992) [hereinafter
OBSERVATIONS ON CONSISTENCY]; INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at
4–5; U.S. GOV’T ACCOUNTABILITY OFF., GAO-97-32, ENVIRONMENTAL CLEANUP AT DOD: BETTER COST-SHARING GUIDANCE NEEDED AT GOVERNMENT-OWNED, CONTRACTOR-OPERATED SITES
3 (1997) [hereinafter BETTER COST-SHARING GUIDANCE NEEDED].
54. See NUTT, supra note 48, at 3–4.
55. Id. at 8–9 (showing that the Iowa Army Ammunition Plant contractor lost contract bid at
“break-even” because its overhead costs to maintain the GOCO facility made it noncompetitive).
56. “Only ten manufacturers survived into the jet age with production of their own designs:
Boeing, Convair, Douglas, Lockheed, McDonnell, Northrop, North American, Republic, and
the principally naval firms Chance Vought and Grumman.” PATTILLO, supra note 11, at 200.
57. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 4–5.
58. See id.
59. Connor, supra note 24, at 6.
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liability dating back to World War II.60 These future liabilities can easily
surpass all the money ever made by the contractor during the war years.61
Decades after being lauded by its sole customer for out-producing the
enemy and helping to win the nation’s wars, U.S. industry is now witnessing
the ravaging consequences of the U.S. government’s short-term memory.
The strategic turning point came in 1997. Through 1997, the U.S. government funded 100 percent of all cleanup at its Navy, Army, and Air Force
GOCO facilities.62 As costs escalated and there was no end in sight, the next
generation of government policymakers re-evaluated its options. In 1997,
the U.S. Government Accountability Office (GAO) urged the DoD to
change its long-standing policy of funding 100 percent of environmental
cleanup costs at its defense manufacturing facilities in favor of shifting
more of the national cost of war onto defense contractors, regardless of
the applicable government contracts and the prior allocation of risk set
forth in those contracts.63 The DoD dutifully obeyed, while acknowledging
the adverse strategic consequences to come.64
D. Three 1990s Reports from the GAO on GOCO Facility Cleanup Costs
Recommend “Cost Sharing” with Former Contractors
The GAO reported on the GOCO program on three occasions between
1992 and 1997.65 In each report, the GAO sounded the alarm about rising
cleanup costs and a lack of DoD willingness to shift more of those costs
onto its contractors. Not once did the GAO look at the content of the standard GOCO contracts from prior decades, the risk allocation set forth in
those contracts, or the historical “grand bargain” that is the GOCO model.
The GAO basically looked at CERCLA’s 1980s strict liability provisions
and the leverage it could provide over GOCO contractors, without any consideration of the pre-existing GOCO model or the governing contracts.66
60. Kenneth Michael Theurer, Sharing the Burden: Allocating the Risk of CERCLA Clean-Up
Costs, 7 ENVTL. LAW. 477, 481 (2001); see also 32 C.F.R. §§ 7.203-22(a) (1965).
61. See GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORTS (1938–1980) (reporting that Grumman’s aggregate net income for the forty-two years between 1938 and 1980 totaled approximately
$378 million—or approximately nine million dollars per year). One of several Long Island Water
Districts potentially affected by the GOCO’s legacy contamination estimated $400 million in future groundwater treatment costs alone over the next thirty years. Christopher Twarowski, Bethpage’s Toxic Plume Creeps Closer to Contaminating Water Supply, LONG ISLAND PRESS ( June 28, 2012).
62. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 5.
63. Id. at 9–10.
64. See, e.g., id. at 5.
Navy officials stated that the Navy is reluctant to pursue GOCO contractors because of
concerns they will pass costs back to the government as an allowable expense or through overhead charges. They also said that a divisive liability issue could slow cleanup operations and
hurt relations between the Navy and its contractors.
Id.
65. OBSERVATIONS ON CONSISTENCY, supra note 53, at 1; INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at 3–4; BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 1.
66. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 3 (“Because Superfund
holds parties liable for the billions of dollars needed to remediate past contamination regardless
Legacy Costs of War and the “GOCO Model”
271
In its first report in 1992, the GAO generally found the allowability rules
under the Federal Acquisition Regulation (FAR) to be too generous in favor
of contractors.67 In its second report in 1994, GAO confirmed and criticized
ongoing Army, Navy, and Air Force funding of environmental cleanups at
GOCOs with little to no effort to look to contractors for contribution.68 In
1997, the third GAO report again documented consistent DoD funding of
GOCO cleanups and inconsistent efforts to solicit contractor participation.69
In combination, the three GAO reports from the 1990s document that from
World War II until at least 1997, the United States consistently viewed contractors as not being liable for legacy environmental liabilities at GOCO plants
for one basic reason: past and future legacy environmental cleanup costs at
GOCO plants are by law “allowable” under the FAR and cost accounting standards and thus recoverable indirectly through contract overhead.70 In essence,
the costs of past wars were being funded by costlier modern weaponry.
The GAO reports represent a historical turning point in the GOCO model.
Ever since, the expectation has been for the DoD, using whatever leverage is
available to the government, to foist onto contractors as much legacy environmental liability as they can bear, regardless of what the production and facilities
contracts allocated to the government.71 The GAO never performed a complete analysis to understand the six-decade evolution of the GOCO model
when it first began evaluating solutions to the escalating cost of GOCO cleanups. The DoD remained silent on the GOCO model and its strategic value.
For these reasons, both the GAO and the DoD have disserved the GOCO
model, an important strategic model that led to “victory through production.”
III. UNDER THE GOCO MODEL, THE U.S. GOVERNMENT
CONSISTENTLY LIMITED THE UPSIDE PROFIT POTENTIAL ON
THE GROUND GOCO CONTRACTORS OPERATED RISK-FREE
For decades, the Renegotiation Act had overshadowed profits at GOCO
facilities and the upside potential for contractors. First enacted in 1942,
Congress repeatedly reauthorized the Renegotiation Act until it finally expired after the Vietnam War.72 The Supreme Court found it constituof wrongdoing, it is important that DLA and the services deal with potentially responsible parties on the basis of consistent policy and accurate data.”).
67. OBSERVATIONS ON CONSISTENCY, supra note 53, at 1–2.
68. INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at 3–4.
69. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 6, 43.
70. Id. at 6 (noting that the DoD’s policy for environmental cost sharing is to follow the Federal Acquisition Regulations (FAR) allowability rules, which provides for reimbursement to contractors for reasonable environmental costs).
71. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 4–5.
72. U.S. GOV’T ACCOUNTABILITY OFF., NSIAD-87-175, GOVERNMENT CONTRACTING: A PROPOSAL FOR A PROGRAM TO STUDY THE PROFITABILITY OF GOVERNMENT CONTRACTORS 13–14
(1987). Congress reauthorized the Renegotiation Act for the final time on December 18,
1975, allowing the law to lapse on September 30, 1976. Renegotiation Act of 1976, Pub. L.
No. 94-185, 89 Stat. 1061 (1975).
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tional.73 In the eyes of the U.S. government, “[r]enegotiation was established . . . as a method of lowering excessive prices on a contract-by-contract
basis.”74 But by 1959, even Congress had to admit that “[r]enegotation of individual contracts and subcontracts involved serious practical difficulties and
also proved unfair to contractors who were not able to offset losses against
profits.”75
Profit limitations for federal procurement contracts date back to the conclusion of World War I and arose because of widespread allegations of profiteering on war contracts.76 Congress reported that profit on World War I
contracts ran well over ten percent in several industries,77 and 23,000 new millionaires had been created.78 As a result, “[b]etween the armistice ending the
first World War and the outbreak of World War II, Congress considered approximately 200 bills and resolutions addressing limitation of war profits.”79
While Congress authorized additional defense manufacturing programs, “it
did so only after limiting profits to be realized by builders of new warships
and aircraft” under the newly enacted Vinson-Trammel Act of 1934.80
A. Statutory Limitations Imposed “Hard Caps” on Military Contract Profits
The Vinson-Trammell Act of 193481 followed years of congressional investigations and imposed fixed limitations on the profits that military contractors
could earn under cost-plus-fixed-fee (CPFF) contracts for ships and aircraft.82
In accordance with its provisions, “all profits in excess of [ten percent] of the
contract price realized by a contractor were to be recaptured.”83 Since 1956,
the Vinson-Trammell Act has been codified at 10 U.S.C. § 2306(d) and limited profits based upon various categories of work performed. It pertains to all
U.S. Armed Forces and mandates the following:
The fee for performing a cost-plus-a-fixed-fee contract for experimental, developmental, or research work may not be more than [fifteen] percent of the estimated
73. Lichter v. United States, 334 U.S. 742, 765–67 (1948) (viewing congressional power to
control contract profits as comparable to conscription).
74. JOINT COMM. ON INTERNAL REVENUE TAXATION, HISTORY AND BRIEF OUTLINE OF RENEGOTIATION 1 (1959).
75. Id. at 1.
76. See HYDE, supra note 11, at 4–5.
77. See id. (referencing the Vinson-Trammell Act, Act of March 27, 1934, Pub. L. No. 73135, 48 Stat. 503 (1934)); Space Gateway Support, LLC, ASBCA No. 55608, 55658, 13-1
BCA ¶ 35,232, at 172,895 (providing a history of GOCO facilities and government profit
limitations).
78. JOINT COMM. ON INTERNAL REVENUE TAXATION, supra note 74, at 5; SMITH, supra note 21,
at 351.
79. Space Gateway Support, LLC, 13-1 BCA ¶ 35,232, at 172,896.
80. Id.
81. Act of March 27, 1934, Pub. L. No. 73-135, 48 Stat. 503 (1934).
82. See To Waive the Applicability of Section 2382 and 7300 of Title 10, United States Code, to Contracts for the Construction or Manufacture of Naval Vessels or Military Aircraft with Respect to Which
Final Payment Is Made Before October 1, 1981: Hearing on H.R. 7247 Before the Investigations Subcomm. of the H. Comm. on Armed Servs., 96th Cong. 52 (1980) (statement of Walton H. Sheley,
Acting Director, Procurement & Sys. Acquisition Div., U.S. Gen. Accounting Office).
83. Space Gateway Support, LLC, 13-1 BCA ¶ 35,232, at 172,896.
Legacy Costs of War and the “GOCO Model”
273
cost of the contract, not including the fee. The fee for performing a cost-plus-afixed-fee contract for architectural or engineering services for a public work or
utility plus the cost of those services to the contractor may not be more than
[six] percent of the estimated cost of that work or project, not including fees.
The fee for performing any other cost-plus-fixed-fee contract may not be more than
[ten] percent of the estimated cost of the contract, not including the fee. . . .84
Similarly, profit limitations statutes have traditionally applied to nonmilitary federal contracts under the Federal Property and Administrative
Services Act of 1949:
(b) Cost-plus-a-fixed-fee contracts.
(1) In general. Except as provided in paragraphs (2) and (3), the fee in a cost-plus-a-fixedfee contract shall not exceed [ten] percent of the estimated cost of the contract, not including
the fee, as determined by the agency at the time of entering into the contract.
(2) Experimental, developmental, or research work. The fee in a cost-plus-afixed-fee contract for experimental, developmental, or research work shall not exceed [fifteen] percent of the estimated cost of the contract, not including the fee.
(3) Architectural or engineering services. The fee in a cost-plus-a-fixed-fee contract for
architectural or engineering services relating to any public works or utility project may
include the contractor’s costs and shall not exceed [six] percent of the estimated cost, not
including the fee, as determined by the agency head at the time of entering into
the contract, of the project to which the fee applies.85
During World War II, government procurement officials imposed the
“lower percentage” six percent profit cap typically reserved for federal “public works” onto various aircraft manufacturers, based the theory that their
products fit loosely within the definition of “public works” despite the obvious research and development risks and costs.86 If any single contractor held
government orders in excess of $500 million, the unwritten government policy was to reduce the profit cap even further—to four percent.87
B. The Renegotiation Act Provided the Government with Authority to Reduce
Profits Well Below the Statutory Caps
The ten-percent statutory profit limitation imposed by the VinsonTrammell Act has rarely served any practical purpose at GOCO facilities because the U.S. government typically resorted to an array of other tools to
hold profits well below that ten-percent cap.88 One of the more commonly
84. 10 U.S.C. § 2306(d) (2012) (emphasis added). See also Act of August 7, 1939, Pub. L. No.
76-309, 53 Stat. 1239, 1239 (1939); Act of February 19, 1948, Pub. L. No. 80-413, § 4(b), 62
Stat. 21, 23 (1948); Federal Property and Administrative Services Act of 1949, Pub. L. No.
81-152, § 304(b), 63 Stat. 377, 395 (1949).
85. 41 U.S.C. § 3905(b) (2012) (emphasis added).
86. See IRVING BRINTON HOLLY, JR., BUYING AIRCRAFT: MATÉRIEL PROCUREMENT FOR THE
ARMY AIR FORCES 376 (1989).
87. Id.
88. Congress suspended the Vinson-Trammell Act in 1940 and replaced it with the Excess
Profits Tax of 1940 that applied to all industries. HYDE, supra note 11, at 36. The Excess Profits
Tax started at fifty percent and reached ninety-five percent during World War II. DENNIS S.
IPPOLITO, DEFICITS, DEBT AND THE NEW POLITICS OF TAX POLICY 44 (2012).
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used profit limitation tools was the Renegotiation Act of 1942,89 which
vested the government with the extraordinary power to confiscate—after
the fact, and at its sole discretion—any and all profits it deemed “excessive”
through the “renegotiation” of government contracts.90 The Act permitted
the U.S. government to “renegotiate” the terms of a contract every six
months and withhold compensation owed to a contractor, even if otherwise
consistent with the ten-percent cap, where it determined that the contractor
would accrue “excessive profits.”91 The legislation provided no benchmarks
on acceptable profits. Virtually all major GOCO production contracts incorporated this law.92 What constituted “excessive” profit rested largely in the
eyes of the U.S. government.93
Upon reauthorization, the law later became known as the Renegotiation
Act of 1951,94 and it remained effective through approximately 1976 when
it lapsed.95 The Renegotiation Act of 1951 permitted the government,
upon issuing “an order determining the amount, if any, of . . . excessive profits” to “eliminate such excessive profits” on a program-by-program basis:
(A) by reductions in the amounts otherwise payable to the contractor under contracts with the Departments, or by other revision of their terms, [or]
(B) by withholding from amounts otherwise due to the contractor any amount of
such excessive profits.96
The Act authorized a five-member Renegotiation Board to require a
“contractor to refund that portion of profits on Government contracts or related subcontracts which [were] determined to be ‘excessive.’ ”97 To give a
sense of its utility, the U.S. government renegotiated approximately 869
89. Sixth Supplemental National Defense Appropriation Act, Pub. L. No. 77-528, § 403(a),
56 Stat. 226, 245 (1942).
90. See BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 10 (1942) (“[T]he War Department,
the Navy Department and the Maritime Commission [have] the authority [under Renegotiation
Act] to review profits realized from [g]overnment contracts and to determine what portion, if
any, in their opinion is excessive.”).
91. U.S. Dep’t of Navy, Amendment No. 38, NOa(s)-2676, at 1–2 ( Jan. 1, 1945) (reducing
the per plane unit price from $39,000 to $36,350 and mandating a contract reduction of $8.7
million) [hereinafter Amended Contract No. NOa(s)-2676]; accord Lichter v. United States,
334 U.S. 742, 774–75, 783 (holding that the delegation of power to administration officials to
determine “excessive profits” is constitutional).
92. See, e.g., NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 13 (1942) (“Many of the contracts which the company has are subject to renegotiation pursuant to the [Renegotiation] Act
which was adopted in the spring of 1942.”). See also Lichter, 334 U.S. at 784 (recognizing the
already common practice as “a procedure already familiar to Congress” and an expression of
“well-considered judgment” that “had [previously] been upheld by this Court in 1924.”).
93. See SMITH, supra note 21, at 351.
94. Renegotiation Act of 1951, ch. 15, 65 Stat. 7 (1951).
95. “The [ninety-fourth] Congress did not complete action on legislation to extend the Renegotiation Act of 1951 beyond its expiration date of [September] 30, 1976.” Renegotiation Act,
CQ ALMANAC (1977), http://library.cqpress.com/cqalmanac/cqal76-1187035 [https://perma.cc/
L8EC-JL9D].
96. Renegotiation Act of 1951, ch. 15, § 105, 65 Stat. 7, 13.
97. JOINT COMM. ON INTERNAL REVENUE TAXATION, AN EVALUATION OF PROPOSALS TO EXTEND AND AMEND THE RENEGOTIATION ACT OF 1951 9 (1975).
Legacy Costs of War and the “GOCO Model”
275
contracts between 1968 and 1975 and required contractors to forfeit over
$163 million in “excessive” profits.98 It mattered not at all how important
a contractor’s contribution to the overall war effort proved to be.
According to Boeing (the manufacturer of crucial B-17 and B-29 longrange bombers), the Renegotiation Board’s “views as to what constitutes a
reasonable percentage of profit [became] progressively lower” each year of
World War II.99 At the same time it clawed back profits, the U.S. government called upon Boeing to build so many “Superfortress” and “Flying Fortress” bombers that it required five other major companies to build the same
“Boeing” bombers without compensation to Boeing.100 The demand for one
Lockheed jet fighter grew so high that, “at the direction of the Army Air
Forces,” Lockheed agreed to turn over its engineering and development
data to a competitor for production.101 Lockheed’s profits were nonetheless
kept at less than 1.5% of its sales.102
North American Aviation’s explanation to its stockholders of the deep,
painful, and immediate impact of the Renegotiation Act is representative:
[M]any of the contracts of your Company were subject to renegotiation pursuant
to the Act of Congress which was adopted in the spring of 1942, and stated that
consequently the figures which appeared in the Annual Report might or might not
be the final figures, depending on the results of renegotiation with the Price Adjustment Board of the Army Air Forces and your Company.
The renegotiation has been concluded and it has been determined that in addition
to voluntary price reductions of $17,900,000 and the waiver of certain escalation payments, your Company has derived additional excessive profits within the meaning
of the Act in the amount of $18,200,000 for the fiscal year ended September 30,
1942.103
The astounding $17.9 million in “voluntary” price reductions demanded by
the U.S. government, on top of $18.2 million in “excessive profits,” dwarfed
North American’s entire 1942 profit of $7.3 million and was anything but voluntary.104 It reflected nothing more than the application of a common govern98. Id. at 17–18 (noting that by comparison, the Renegotiation Board’s operational expenses
during that same eight-year period exceeded thirty-three million dollars, or twenty-one percent
of the total forfeiture by contractors).
99. BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 14 (1945).
100. See id. at 3–4 (reporting that “Boeing” aircraft were built by Lockheed, Douglas, GM,
Bell Aircraft, and Glenn L. Martin Co.).
101. LOCKHEED AIRCRAFT CORP., THIRTEENTH ANNUAL REPORT OF THE PRESIDENT 2 (1944)
(reporting that the P-80 Shooting Star’s secret jet engineering and design data was transferred
to North American Aviation for production in its Kansas City plant).
102. LOCKHEED AIRCRAFT CORP., supra note 15, at 1 (1.1% net profit on sales, or $7,988,420
in profit for $697,408,167 in sales); LOCKHEED AIRCRAFT CORP., supra note 101, at 1 (0.75% net
profit on sales, or $4,522,848 profit for $611,537,771 in sales); LOCKHEED AIRCRAFT CORP.,
FOURTEENTH ANNUAL REPORT OF THE PRESIDENT 1 (1945) (1.3% net profit on sales, or
$5,469,888 profit for $417,615,160 in sales).
103. NORTH AMERICAN AVIATION, INC., REVISED ANNUAL REPORT 1 (1942) (emphasis added).
104. See Arthur Edward Burns, The Tax Court and Profit Renegotiation, 13 J.L. & ECON. 307,
311 (1970) (explaining that contractors often would report voluntary refunds and price reductions to “avoid a finding of excessive profits” by the Renegotiation Board).
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ment tactic to reduce contractor profits, i.e., threaten to withhold government
contracts from the sole available customer unless deep concessions are made.105
In hindsight, Congress acknowledged that the Renegotiation Act proved
highly subjective in favor of the U.S. government and did not reward contractors for cost savings.106 In a multi-year contract, for instance, profits
from one year could be recaptured by the Renegotiation Board, but not offset with later unprofitable years—a phenomenon referred to at the time as
“skimming off the cream.”107 Contractors consistently complained that
their hard-earned cost savings—and thus higher profits—occasioned by
new manufacturing techniques would invariably be recaptured unfairly and
exclusively by the U.S. government, undermining the incentives for contractor innovation and independence.108
Administrative costs of operating under the annual profit reviews called for
by the Renegotiation Act became a separate source of industry frustration.
Contractors were compelled to file annual profitability reports with the Renegotiation Board, and the Board would decide—typically years afterward—
whether it wanted to “renegotiate” any previously performed contracts.109
At Boeing, the U.S. government held net profits below 1.5% during history’s most intense and successful expansion of defense production.110 Over
the same period, the U.S. government pressured Boeing to double and triple
its output as rapidly as possible while imposing eighty percent and higher
marginal tax rates.111 Boeing had few options against the U.S. government
other than public relations (i.e., calling public attention to the significant
losses it had incurred in developing the strategically important B-17 “Flying
Fortress,” the government’s refusal to allow it to access foreign markets, the
company’s “outstanding contribution to the War Effort,” and multiple
awards for production excellence).112 Boeing’s production and efficiency
105. NORTH AMERICAN AVIATION, INC., supra note 103, at 1.
106. JOINT COMM. ON INTERNAL REVENUE TAXATION, supra note 97, at 1.
107. Id. at 117.
108. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT 6 (1952); GRUMMAN AIRCRAFT
ENG’G CORP., 29TH ANNUAL REPORT 5 (1958); LOCKHEED AIRCRAFT CORP., supra note 15, at 1–2
(1943) (reporting that Lockheed achieved large cost savings with “better utilization of personnel,
more consistency of procedure, and the elimination of duplication,” but had to reserve fifteen
million dollars and most of its profits for “renegotiation”).
109. JOINT COMM. ON INTERNAL REVENUE TAXATION, STAFF REVIEW OF RECOMMENDATIONS
MADE ON THE RENEGOTIATION PROCESS: A PRELIMINARY REPORT 7–8 (1974).
110. See, e.g., BOEING AIRPLANE CO., supra note 90, at 9, 11 (reporting 1942 net profit of
1.34%, or $5,238,000 in profits based upon $390,320,000 in government sales); BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 13 (1943) (reporting 1943 net profit of 0.91%, or
$4,482,870 in profits based upon $493,188,161 in government sales).
111. See BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 15, 17 (1944) (containing diagrams
showing Boeing’s sales expanded six-fold from $100 million to over $600 million between 1941
to 1944); NORTH AMERICAN AVIATION, INC., supra note 31, at 1 (reporting North American doubled production output in one year from $253 million in 1942 to $509 million in sales in 1943).
112. BOEING AIRPLANE CO., supra note 110, at 4 (reporting that Boeing received the ArmyNavy “E Award” repeatedly for production excellence); cf. GRUMMAN ENGINEERING AIRCRAFT
CORP., ANNUAL REPORT (1944) (reporting that Grumman received five renewals of the Navy
“E” Award).
Legacy Costs of War and the “GOCO Model”
277
increased massively during each year of World War II, yet its profit margins
correspondingly fell due to ever-increasing taxes and government confiscation; Boeing openly pleaded in its annual reports for the U.S. government
not to “renegotiate” more take-backs, but more often than not, these pleas
fell on deaf ears.113
At Douglas Aircraft, the U.S. government kept defense-related profits to an
average of 1.2% of sales, despite breathtaking output and production expansion.114 Again, the company’s profits decreased each year of the war because
of renegotiation, despite record-breaking manufacturing achievements.115
Once the world’s leading commercial air transport manufacturers, Douglas
Aircraft, turned to building “Boeing” and “Consolidated Aircraft” bombers;
trade secrets were subordinated to the needs of the nation’s war effort for
the first time in U.S. history.116
Through government action, profits across the defense industry were kept
at razor-thin margins. Profit limitations applied to North American Aviation,117 even though it produced more aircraft and parts in 1944 than in
the previous nine years combined.118
According to Northrop’s annual reports from the 1950s through 1970s,
the company’s profit margins typically ranged from two to three percent
113. See BOEING AIRPLANE CO., supra note 110, at 12 (“It is the Management’s considered
opinion that, because of the Company’s outstanding production and economy record during
the year 1943 and the fact that 1943 profits are substantially lower than those of 1942 in the
face of a large increase in volume of business, neither Boeing Airplane Company nor Boeing Aircraft Company should be subjected to renegotiation for the year 1943.”); BOEING AIRPLANE CO.,
supra note 111, at 16, 22; BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 11–12 (1946).
114. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 8 (1941) (reporting 1.36% profits based
upon Army and Navy work); DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 5 (1942) [hereinafter DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT] (reporting 2.2% profits based on sales);
DOUGLAS AIRCRAFT CO., INC., supra note 9, at 3 (reporting 0.6% profits based on sales); DOUGLAS
AIRCRAFT CO., INC., ANNUAL REPORT 6 (1944) (reporting 0.73% profits based on sales); DOUGLAS
AIRCRAFT CO., INC., ANNUAL REPORT 9 (1945) [hereinafter DOUGLAS AIRCRAFT CO., INC., 1945
ANNUAL REPORT] (reporting 1.2% profits based on sales).
115. DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT, supra note 114, at 5 (reporting that
1942 income declined more than thirty-nine percent compared to 1941 despite 177% output
increase because of government profit limitation policies and seventy percent taxes); DOUGLAS
AIRCRAFT CO., INC., supra note 9, at 3 (reporting that Douglas Aircraft returned to the United
States twelve million dollars, over twice the company’s 1943 profits); DOUGLAS AIRCRAFT CO.,
INC., 1945 ANNUAL REPORT, supra note 114, at 4–5 (reporting that Douglas Aircraft produced
29,385 heavy planes––a “war record represent[ing] one of the most outstanding industrial accomplishments in the Nation’s history”).
116. See DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT, supra note 114, at 8.
117. North America’s wartime profits were less than three percent of sales, or fifty-seven million dollars for two billion dollars in total sales to the government (2.9%). See NORTH AMERICAN
AVIATION, INC., supra note 16, at 2; see also NORTH AMERICAN AVIATION, INC., supra note 30, at 1
(reporting 1.3% in 1943 based on $6,790,323 in net income from $509,139,649 in sales); NORTH
AMERICAN AVIATION, INC., supra note 3, at 1 (reporting 1.2% in 1944 based on $8,389,967 in net
income from $718,003,498 in sales).
118. NORTH AMERICAN AVIATION, INC., supra note 3, at 3.
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of sales, far below any statutory limit.119 The U.S. government confiscated
Northrop’s profits of $550,000 in 1945 for work performed three years earlier in 1942.120 The U.S. government confiscated an additional $5 million in
1958 for profits earned by Northrop three years earlier in 1955.121 The 1958
clawback was significant compared to Northrop’s profit margin in 1958 of
only 1.5% and its 1958 net income of $6.8 million.122
Grumman’s experience is particularly illustrative. The U.S. government
applied the Renegotiation Act as a tool to maintain its profit at two to
three percent of the cost of sales from World War II through the Cold
War.123 Grumman complained openly that the U.S. government’s use of
the Renegotiation Act was unjust and unfairly prevented defense contractors
from recognizing the benefits of program-related engineering innovation
and cost savings.124 At times, the U.S. government’s confiscatory takebacks became so extensive and painful that Grumman warned its stockholders in annual reports that it could no longer fund its own basic expansion
goals and saw itself on the verge of losing its competitive standing.125 Grumman cautioned that the U.S. government’s confiscatory policies failed to
“foster a strong and efficient defense industry.”126
The confiscatory practices fueled by the Renegotiation Act had the practical effect of making even contractor-owned production facilities increasingly government-owned because contractors were left with little capital to
fund their own expansions and needed government funding.127 The
GOCO program operated within the harshest of business and political environments and offered limited upside potential for contractors—precisely why
the U.S. government was compelled to contractually assume the facility-related
downside risks.
C. Standard Government Contracts Included the Combination of Statutory
“Hard” Caps and the Renegotiation Act’s “Soft” Caps
The U.S. government implemented the statutory limitations on military
contract profits through various vehicles, including the Armed Services
119. See NORTHROP CORP., 25TH ANNUAL REPORT 5 (1964) (summarizing earnings from
1956–64, which ranged from 1.5% to 3.3%).
120. NORTHROP AIRCRAFT INC., ANNUAL REPORT 16 (1945).
121. NORTHROP AIRCRAFT INC., ANNUAL REPORT 15 (1958).
122. Id. at 14.
123. GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT 12 (1940); GRUMMAN AIRCRAFT
ENG’G CORP., ANNUAL REPORT 39 (1980).
124. GRUMMAN AIRCRAFT ENG’G CORP., supra note 108, at 5.
125. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT, supra note 108, at 5–6.
126. GRUMMAN AIRCRAFT ENG’G CORP., 29TH ANNUAL REPORT, supra note 108, at 5.
127. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT, supra note 108, at 5–6.
Funds for capital purposes cannot be retained for use in the business, even in a year of very
high sales, because of ‘Excess Profits Taxes.’ It has been necessary to finance with Government funds the new and modernized facilities we need to continue in business. As a result,
a larger percentage of our plant is becoming Government owned.
Id.
Legacy Costs of War and the “GOCO Model”
279
Procurement Regulations (ASPR) and its successor military contract regulations, the FAR.128 At AFP 42 in Palmdale, California, for example, the government routinely capped the contractors’ profits on production contracts at
7% to 8.5%129 and then proceeded to incorporate the additional leverage afforded by the Renegotiation Act through the standard ASPR provisions.130
The AFP 42 production contracts from the 1950s through the 1970s typically incorporated the standard 1959 ASPR provision implementing the Renegotiation Act,131 which then provided “(a) To the extent required by law
this contract is subject to the Renegotiation Act of 1951 (50 U.S.C. App.
1211 et seq.) as amended and to any subsequent act of Congress providing
for renegotiation of Contracts . . .”132 At virtually all GOCO facilities, the
U.S. government incorporated into procurement contracts, and reviewed annually, the contractors’ profits under the Renegotiation Act.133
The annual profit reviews and aggressive application of the Renegotiation
Act to GOCO contractors contrast sharply with the U.S. government’s view
today that its contractors are highly profitable and operated no differently
than any other standard commercial relationship.134 To the contrary, the
military contractors were operating within a highly controlled, low-margin
128. See, e.g., 41 C.F.R. § 5-3.404-3 (1961) (“Except as specified in paragraphs (b) and (c) of
this § 5-3.404-3 the fixed fee shall not exceed [ten] percent of the estimated cost of the contract
exclusive of the fee as determined by the head of the service conducting the procurement at the
time of entering into a cost-plus-a-fixed fee contract.”); see also 41 C.F.R. § 2-3.404-3 (1964) (“In
other cost-plus-fixed-fee contracts the fee . . . shall generally not exceed: [ten percent] in contracts for experimental, developmental or research work; and [seven percent] in all other contracts.”); ASPR 5A-3.405-5 (1976) (“Except as specified in (b), below, the fixed fee shall not exceed [ten] percent of the estimated cost of the contract, exclusive of fee. . . .”); FAR 15.903 (1984)
(“For other cost-plus-fixed-fee contracts, the fee shall not exceed [ten] percent of the contract’s
estimated cost, excluding fee.”).
129. See, e.g., Air Force, AF33(600)-37834, at 10 (Sept. 2, 1958) [hereinafter T-38 “Talon”
Contract No. AF33(600)-37834] (setting a fixed fee of 8.5% of costs); Air Force, AF33(600)33168 (Feb. 18, 1958) [hereinafter T-38 “Talon” Contract No. AF33(600)-33168] (setting a
fixed fee of seven percent of costs).
130. T-38 “Talon” Contract No. AF33(600)-37834, supra note 129, at 59.
131. See, e.g., T-38 “Talon” Contract No. AF33(600)-37834; U.S. Dep’t of Def., F33657-74C-0024 (Sept. 12, 1973) [hereinafter F-5 “Freedom Fighter” Contract No. F33657-74-C-0024].
132. 32 C.F.R. § 7.103-13(a) (1959).
133. See NORTH AMERICAN AVIATION, INC., supra note 3, at 1 (noting that “practically all” 1944
income is subject to renegotiation and thus the company must make large reserves); NORTHROP AIRCRAFT INC., ANNUAL REPORT 19 (1945) (Note D); NORTHROP AIRCRAFT INC., supra note 119, at 48
(Note G); NORTHROP AIRCRAFT INC., ANNUAL REPORT 50 (1976) (Note K) (noting that the Renegotiation Act of 1951 is expiring but profits would still be limited under Vinson-Trammell Act of
1934).
134. See, e.g., Findings of Fact and Conclusions of Law at 2, 36, 50, TDY Holdings, LLC v.
United States, No. 07-cv-787 (S.D. Cal. filed July 29, 2015), ECF No. 277 [hereinafter TDY
Findings of Fact and Conclusions of Law] (holding that despite sixty years of aerospace work
for the government, the United States is not liable for legacy cleanup costs because the contractor “sought the aviation contract work and financial inducements offered by the Government
during WWII to build and expand its existing plant” and “[t]hroughout its operating history,
TDY repeatedly bid on such contracts to its financial benefit”).
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environment.135 GOCO contractors accepted that situation based upon the
“grand bargain” that the government would assume facility-related liabilities.136 The evolving government position of both limiting contractor profitability and assigning the downside risk of manufacturing to the contractor
is found nowhere in any standard GOCO contract.
D. The Government’s Choice and Use of Cost-Plus-Fixed-Fee Contracts Were
Calculated to Limit the Contractors’ Facility-Related Liabilities
The “[c]onclusion of World War I ‘reduced the aviation industry to
chaos.’ Within months, over $100 million of contracts were cancelled. As
a result, [ninety percent] of the industry underwent liquidation.”137 At the
start of World War II, aircraft manufacturers would not enter fixed-price
contracts because:
[M]any did not have sufficient funds for additional expansion . . . and were loath to
undertake the entire risk of expanding because of fear that at the end of the war
emergency they would [once again] be left with excess, useless plant to which
their capital was committed. Manufacturers did not wish to find themselves
heavily overcapitalized or overindebted at war’s end, risking reorganization or
bankruptcy. The experience of the first World War and severe recession that followed were still fresh memories for many.138
In this environment, fixed-price contracts were unacceptable to contractors, and the government could not get the products it needed to wage
war without some other type of contract.139 By necessity, the CPFF contract
arose during World War II as a result of two competing forces: the government’s desire to reduce costs and restrict contractor profits and the contractors’ reluctance to enter into any more fixed-price contracts at the risk of future enterprise-threatening loss.140
135. See generally Elmer J. Stone, Contract by Regulation, 29 LAW & CONTEMP. PROBS. 32, 32
(1964)
Several billions of dollars of annual procurement is [a]ffected by no more than half-adozen basic and unalterable contract forms. This rigidity leaves little or no room for negotiation and ‘tailoring’ the contract to the transaction. It not infrequently causes hardships in
performance and financial results. . . . [A] system such as this is inconceivable in the pure commercial world. . . .
Id.
136. LOCKHEED AIRCRAFT CORP., supra note 15, at 3 (“Your company does ask of its government, however, that upon termination day it promptly receive the monies that are justly owed it
and thus be in a position to work enterprisingly in the future as it has in the past for its reasonable existence.”).
137. Space Gateway Support, LLC, ASBCA No. 55608, 55658, 13-1 BCA ¶ 35,232, at
172,895.
138. Id. at 172,899.
139. HOLLY, supra note 86, at 414.
140. LOCKHEED AIRCRAFT CORP., supra note 15, at 1–2 (1943) (reporting that Lockheed experienced an increase in cost-plus-fixed-fee (CPFF) contracts from twenty percent in 1942 to sixty
percent in 1943, and fixed-fee contracts simultaneously dropped from eighty percent to forty
percent because the contractor “could not assume the risks” of fixed-price contracts and reluctantly accepted less profitable CPFF contracts).
Legacy Costs of War and the “GOCO Model”
281
The contract profiteering lessons of World War I, together with the strict
profit limitation provisions that followed, led “corporate officers to prefer[]
to accept a contract foregoing profits if only they were guaranteed against
loss.”141 Because contractors “in their fear of uncontrolled costs flatly refused to accept traditional fixed-price or lump-sum contracts . . . the
CPFF contract, for all its obvious drawbacks, seemed to be the only practical
escape.”142 “The CPFF contract was designed to allay the manufacturer’s
fears regarding costs over which he had no control.”143 The CPFF contract
guaranteed a fixed fee on top of production and overhead costs, and it shifted
the risk of unforeseeable liabilities to the government under standard “hold
harmless” and “liability for facilities” contract provisions.144 For years,
CPFF contracts also prevented contractors from knowing how much profit
they would ultimately retain because the U.S. government needed to review
and approve the costs.145
Any government program that is built on unlimited future contractor liability, such as CERCLA, and balanced against decades of capped, renegotiated, and recaptured past profits, is inherently unsustainable. Such a program has the one-sided effect of limiting the costs of production for the
government and assigning all downside risk for defense manufacturing to
contractors. This structural imbalance is inconsistent with a typical commercial relationship and is profoundly inequitable for purposes of CERCLA allocation. Indeed, even the government has argued elsewhere “that a ceiling
of less than [four] percent on fees,” an amount consistently greater than various GOCO contractor profits, “make[s] the range of allowable compensation too narrow.”146
In short, the U.S. government’s position of today that GOCO contractors
must share heavily in potentially devastating legacy environmental liabilities
is inconsistent with the language and purpose of the CPFF contracts, in
which the government historically assumed the risk of plant-related damages
and losses in exchange for closely managed contractor profits. Having developed the CPFF program to encourage contractors to produce goods for the
government in a hostile and low-cost environment, the U.S. government is
inexplicably shifting plant-related liabilities onto contractors a half-century
later as if the contracts never existed.
141. HOLLY, supra note 86, at 333.
142. Id. at 335–36.
143. Id. at 335.
144. See FAR 16.306 (describing CPFF contracts).
145. LOCKHEED AIRCRAFT CORP., supra note 15, at 3 (noting that given Lockheed’s large number of CPFF contracts, “all elements of cost must be finally approved by the government before
the company’s position can be considered definite and its reimbursements thereunder secure. To
date this company alone has $215,000,000 of items on which it has yet to receive final
approval.”).
146. HOLLY, supra note 86, at 376.
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E. The Government Applied Pressure in Unconventional Ways to Control
GOCO Facility Operations and Profits
The U.S. government applied pressure against contractors in various ways
to recover contract payments. The U.S. government went so far as to withhold from one contractor any new work unless it surrendered previously
earned profits.147 The contractor had to “voluntarily” surrender profits as
a quid pro quo for more government work, even at a time when the U.S.
government mandated that the GOCO facility perform only military work
and had no other options.148 For example, in order to secure a large contract
of 2,000 F8F “Bearcats” and 1,100 F6F “Hellcats,” the Acting Secretary of
the Navy, Artemus Gates, demanded that Grumman first voluntarily return
over seventy percent, or $18.6 million, in what he described as “unconscionable” 1944 annual profits.149 Gates acknowledged in the same letter, however, that those profits had been earned by Grumman, “primarily . . .
through exceptional efficiency in the attainment of quantity and quality production, economy in the use of materials, facilities, and manpower with its
consequent reduction of costs[.]”150 Only in the eyes of the government
could extraordinary efficiency and performance be “unconscionable.” Grumman surrendered its profits, obtained more work, and reduced the production costs of “Hellcat” fighters from the original price of $60,000 each to
$36,350 (a forty-percent reduction), well below all competitors.151 The
U.S. government and war effort benefitted.
The U.S. government applied leverage to reduce GOCO contractor profits by whatever means available. The Undersecretary of the Navy, James
Forrestal, instructed Navy procurement officials in 1943 “to make every effort to get [the contractor’s] business on a fixed price basis.”152 In response,
one contractor reminded the Navy that fixed-price contracts are “impractical” because it could not control national inflation, which the government
actively fueled: the “War Labor Board almost daily grants [wage] increases
147. See Letter from Artemus L. Gates, Acting Sec’y, U.S. Dep’t of Navy, to Grumman Aircraft Eng’g Corp. 2 (Dec. 18, 1944) [hereinafter Gates Letter].
148. HOLLY, supra note 86, at 428.
149. See Gates Letter, supra note 147, at 2–3.
150. Id. at 2.
151. To the company’s frustration, the U.S. government did not reward Grumman for its
achieved cost-savings and efficiencies. As Grumman became more skilled and decreased the
per-unit cost of F6F “Hellcats” by forty percent, despite material shortages, these savings
did not benefit Grumman because they were forcibly taken back by the government. U.S.
Dep’t of Navy, Fixed Price Contract, NOa(s)-846 (Dec. 29, 1943) [hereinafter Contract No.
NOa(s)-846]; U.S. Dep’t of Navy, Fixed Price Contract, NOa(s)-2676 (Dec. 29, 1943) [hereinafter Contract No. NOa(s)-2676]; Letter from E.M. Pace, Jr., Acting Assistant Chief, Bureau of
Aeronautics, U.S. Dep’t of Navy, to Grumman Aircraft Eng’g Corp. (Apr. 28, 1944). All manufacturing improvements and cost savings attained by Grumman ultimately did not benefit
Grumman, except to the extent the Navy would award additional low-profit contracts to its
highest-performing contractor. Letter from Leon Swirbul, Exec. Vice President, Grumman Aircraft Eng’g Corp., to Rudolph Halley, S. Comm. Chief Counsel (Mar. 28, 1945).
152. Letter from Captain A.C. Miles, Bureau of Aeronautics, U.S. Dep’t of Navy, to L.R.
Grumman, President, Grumman Aircraft Eng’g Corp. (Mar. 29, 1943).
Legacy Costs of War and the “GOCO Model”
283
to various labor groups around the Country.”153 These inflationary pressures
coupled with government-influenced material and worker shortages compounded the inability of contractors to operate in a fixed-fee environment.154
Nevertheless, the government at times forcibly converted profit-guaranteeing
CPFF contracts into far riskier and less profitable “fixed-fee” contracts.155
Over the years, the U.S. government regularly called upon contractors to
remit millions of dollars, even under fixed-price contracts.156 At the conclusion
of the Korean War, the U.S. government forced contractors to forfeit profits
that were already below the average profit margins of other U.S. industries.157 Contractors warned shareholders that the U.S. government’s “renegotiation” of already thin profits was patently unfair, caused painful losses,
and amounted to nothing more than an “alarming” decision to punish contractors while removing “all incentive for efficiency.”158 Because of the U.S.
government’s relentless clawback tactics, for decades contractor profits averaged less than three percent of gross sales.159 The U.S. government’s confiscatory policies actually drove various contractors to pursue diversification
into commercial work for their own viability.160
IV. THE GOCO MODEL: STANDARD GOVERNMENT
CONTRACTING PROVISIONS
A. Overview
Government contracts are vital in understanding the respective risks and
responsibilities of the United States and its contractors at GOCO facilities at
specific points in time. Given that the United States funded most or all of the
construction and use of GOCO facilities, logically the contracts vest substantial rights in favor of the U.S. government. However, the same contracts
that so strongly favor the U.S. government in various respects demonstrate
that the United States bears significant—and often exclusive—liability for
153. Letter from L.R. Grumman, President, Grumman Aircraft Eng’g Corp., to Captain
A.C. Miles, Bureau of Aeronautics, U.S. Dep’t of Navy (Apr. 1, 1943).
154. Id.
155. See GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT (1943).
156. See, e.g., U.S. Dep’t of Navy, Amendment No. 64, NOa(s)-4799 ( July 9, 1948) [hereinafter Amended Contract No. NOa(s)-4799] (requiring Grumman to refund $5,866,736.96
and decreasing contract by a total of over $18 million); see also Letter from L.R. Grumman,
President, Grumman Aircraft Eng’g Corp., to Hugh A. Fulton, S. Comm. Chief Counsel
(Aug. 17, 1943) (stating that Grumman returned ten million dollars in profits from 1942 and
1943).
157. See GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT 4–5 (1955).
158. GRUMMAN AIRCRAFT ENG’G CORP., 27TH ANNUAL REPORT 4 (1956); see also GRUMMAN
AIRCRAFT ENG’G CORP., 28TH ANNUAL REPORT 3 (1957).
159. See, e.g., GRUMMAN AIRCRAFT ENG’G CORP., 36TH ANNUAL REPORT 8 (1965).
160. See GRUMMAN AIRCRAFT ENG’G CORP., 28TH ANNUAL REPORT, supra note 158, at 2–3 (reporting that the first commercial aircraft program started in 1957 with the “Gulfstream” program to reduce the dependence on government contract work).
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environmental contamination that occurred as a result of the governmentdirected production and use of GOCO facilities.
B. Contract Standardization
In relying on government contracts to allocate responsibility for environmental remediation costs, one of the most significant hurdles simply is finding
the contracts. In many cases, key contracts have been lost or destroyed in the
decades since performance.161 In other cases, contracts (or portions thereof )
may remain classified.162 Fortunately, the United States—and the DoD in
particular—relied heavily on the use of standardized contract provisions between World War II and today.163 GOCO contractors (and the United States)
may be able to rely on that standardization to demonstrate the existence of key
contract terms, even in the absence of a complete contract.164
The United States began the process of standardizing DoD procurement
procedures and contract provisions with the Armed Services Procurement
Act of 1947.165 The ASPR was first promulgated, albeit in a limited fashion,
on May 19, 1948.166 This early version of the ASPR did not include any specifically required contract language, instead providing some basic policies
and assigning responsibility for various procurement functions to certain offices within the government.167 The first required contract clauses appeared
in the 1954 edition of the Code of Federal Regulations,168 but these clauses
were limited to three specific types of contracts: (1) Fixed-Price Supply Contracts, (2) Cost-Reimbursement Type Supply Contracts, and (3) Personal
Services Contracts.169 No required contract provisions were provided for
161. See generally Renee M. Collier & Lt. Col. Timothy J. Evans, Department of Defense Affirmative Cost Recovery Against Private Third Parties, 58 A.F. L. REV. 125, 144 (2006) (arguing diligent efforts must be used to locate the early contract documents when bringing an affirmative
cost recovery claim).
162. See 32 C.F.R. § 2001.12(c)(1) (outlining the duration of time information remains
classified).
163. See STEVEN W. FELDMAN, GOVERNMENT CONTRACT GUIDEBOOK § 26:1 (4th ed. 2015).
164. See E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1370 n.3 (Fed. Cir.
2004) (imputing standard contract language in the absence of the World War II-era contract).
165. See Armed Services Procurement Act of 1947, Pub. L. No. 80-413, 62 Stat. 21 (1948).
166. See 32 C.F.R. §§ 400.100–404 (1949); see also id. § 400.102 (effective May 19, 1948). The
Armed Services Procurement Regulations (ASPR) were later codified at 32 C.F.R. parts 1–32.
Contract provisions were generally located in Part 7, and policies (as well as certain supplemental contract provisions) regarding government property were generally located in Part 13.
167. See 32 C.F.R. §§ 400.100–404.
168. These ASPR contract provisions were first promulgated on December 13, 1952. 17 Fed.
Reg. 11,315 (Dec. 13, 1952). This article generally does not address “supplemental” contract
provisions promulgated by the various branches of the DoD, such as the Air Force Procurement
Instructions, the Navy Procurement Directives, the Army Procurement Procedure, and the Defense Supply Procurement Regulations (all under the ASPR), or the various supplements to the
FAR. See 32 C.F.R. §§ 1000.101–608 (1954) (containing Air Force Procurement Procedures,
later known as the Air Force Procurement Instructions); 32 C.F.R. § 590.101 (1954) (containing
Army Procurement Procedures). While these supplemental contract clauses may be relevant in
particular GOCO cases, a detailed examination of each of these supplements is beyond the scope
of this article.
169. 32 C.F.R. §§ 7.100, 7.200, 7.500 (1954).
Legacy Costs of War and the “GOCO Model”
285
Facilities Contracts.170 The 1954 ASPR contract provisions were amended
and expanded twice in the following ten years to include additional required
provisions for Fixed Price and Cost-Reimbursement Type Research and Development Contracts (1960) and Fixed Price Construction Contracts
(1964).171 The ASPR was expanded to include required contract provisions
for Facilities Contracts in late 1964.172
The ASPR remained in effect until March 8, 1978, when it was renamed
the Defense Acquisition Regulation (DAR).173 The DAR then merged with
the Federal Procurement Regulations to form the consolidated Federal Acquisition Regulations in 1984, which remain in effect today.174 As detailed below,
many of the ASPR contract provisions relating to GOCO facilities closely parallel similar provisions found in pre-ASPR contracts.175 Likewise, many of the
ASPR/DAR contract clauses were transferred—at least in substance—to the
FAR.176 On May 15, 2007, the FAR was amended, ostensibly to “improve[]
the management of government property while fostering efficiency, flexibility,
innovation and creativity by adopting property practices typically used in the
commercial arena while continuing to protect the Government’s interest.”177
In large part, this “efficiency” was achieved by removing many of the Facilities
Contract clauses that had previously favored GOCO contractors attempting
to recover environmental remediation costs.178
170. See id. § 7.102. The ASPR did provide general policy guidance for Facilities Contracts.
See 32 C.F.R. §§ 13.000–506 (1954). The ASPR also provided required contract clauses to be
inserted into Fixed Price and Cost-Reimbursement Type Supply Contracts that utilized government property in the performance of these contracts. See 32 C.F.R. § 13.500; see also id. § 13.503
(requiring the use of the contract provision in all Cost-Reimbursement Type Supply Contracts).
171. See 32 C.F.R. §§ 7.102, 7.401 (1960) (adding Fixed Price and Cost-Reimbursement
Type Research and Development Contract provisions at §§ 7.400 and 7.500, respectively); 32
C.F.R. §§ 7.601, 7.602 (1964) (adding Fixed Price Construction Contract provisions at § 7.600).
172. 29 Fed. Reg. 14,813, 14,822 (Oct. 31, 1964) (codified at 32 C.F.R. § 7.701 (1965)).
173. U.S. DEP’T OF DEF., DIRECTIVE 5000.35 1 (1997); see also 43 Fed. Reg. 15,150, 15,151
(Mar. 8, 1978) (“Effective with the issue of this part, the ASPR is redesignated as the DAR
and all policies and procedures continue in force.”). The DAR was first formally promulgated
in the Code of Federal Regulations on December 31, 1979. Defense Acquisition Regulation
(DAR), 44 Fed. Reg. 77,158, 77,158 (Dec. 31, 1979); see also 32 C.F.R. vii (1979); KATE M.
MANUEL ET AL., CONG. RESEARCH SERV., R42826, THE FEDERAL ACQUISITION REGULATION
(FAR): ANSWERS TO FREQUENTLY ASKED QUESTIONS 10 (2015). Due to the volume of the
DAR, the government elected to publish these regulations directly in the Code of Federal Regulations rather than in the Federal Register. 32 C.F.R. vii; see also CFR Publication of Armed
Services Procurement Regulations, 41 Fed. Reg. 18,505, 18,558 (May 6, 1976) (announcing
the alternate mode of publication).
174. FAR pts. 1–51. The FAR carried over many of the provisions from the DAR and the
ASPR. MANUEL ET AL., supra note 173, at 10–11; see FAR 52.106 (describing the derivation of
FAR clauses and providing notations for identifying “verbatim” and “almost verbatim”
transitions).
175. See discussion infra Part IV.D–E.
176. See, e.g., FAR 52.245 (containing many of the Facilities Contract provisions formerly
codified at 32 C.F.R. § 7.700); FAR 52.229-3 (containing taxes clause formerly codified at 32
C.F.R. § 7.103-10(b)); see also discussion infra Part IV.D–E.
177. Federal Acquisition Regulation; FAR Case 2004–025, Government Property, 72 Fed.
Reg. 27,364, 27,364 (May 15, 2007).
178. Compare FAR 52.245 (2007) with FAR 52.245 (1984).
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C. GOCO Contract Types
GOCO contracts fall into one of two broad categories: “facilities” contracts and “procurement” contracts. In the context of this article, facilities
contracts refer to contracts for the construction, maintenance, use, and acquisition or disposal of the physical infrastructure at GOCO facilities.179
Procurement contracts refer to contracts that call for the use of GOCO facilities to manufacture particular goods for the government.180 These two
general categories of contracts must often be read together to understand
fully the allocation of risks and responsibilities between the government
and its GOCO contractor at a particular facility and at a particular point
in time.
D. Facilities Contracts
Government procurement regulations recognize three types of facilities
contracts: (1) Facilities Acquisition contracts, (2) Facilities Use contracts,
and (3) Consolidated Facilities contracts.181 Facilities Acquisition contracts
govern the initial design and construction of the government facilities and
are primarily useful to identify who assumed responsibility for that plant’s
design and construction.182 Facilities Use contracts govern a contractor’s
use of a GOCO facility after it has been acquired or constructed.183 Facilities
Use contracts include a number of significant provisions, including the allocation of certain risks associated with use of the facilities to the government
and the contractor.184 Finally, Consolidated Facilities contracts are a combination of Facilities Acquisition and Facilities Use contracts, governing both a
contractor’s initial acquisition or construction of the government’s facilities,
and the contractor’s subsequent use of those facilities.185
1. Facilities Contracts: Design, Construction, Inspection, and Approval
Perhaps the most fundamental—although indirect—way the government
has impacted industrial operations at U.S.-funded GOCO facilities is through
its control of the design and construction of those GOCO facilities. During
World War II, this control was achieved through contract clauses such as
the following: “All of said Emergency Plant Facilities shall be in general
179. The ASPR, the DAR, and the FAR generally refer to these contracts as “Facilities Use,”
“Facilities Acquisition,” and “Consolidated Facilities” contracts. See, e.g., 32 C.F.R. § 7.701
(1965).
180. This includes traditional “procurement” contracts, such as Fixed Price and CostReimbursement Type Supply Contracts under the ASPR. This article does not address Research
and Development contracts, which by their nature are less likely to cause significant environmental contamination.
181. See, e.g., 32 C.F.R. § 7.701 (1965) (containing initial ASPR Facilities Contract provisions); FAR 52.245 (1984) (containing initial FAR Facilities Contract provisions).
182. See Connor, supra note 24, at 9.
183. Id.
184. See id.
185. See 29 Fed. Reg. 14,813, 14,823 (Oct. 31, 1964).
Legacy Costs of War and the “GOCO Model”
287
accordance with the drawings, specifications, descriptions and instructions set
forth in Appendix A. . . .”186 This provision—or one very similar—is found in
every single one of the approximately nine facilities construction contracts executed to construct NWIRP No. 464 during World War II.187 The government promulgated a similar, mandatory contract provision for use in all Consolidated Facilities and Facilities Acquisition contracts in 1964, which
remained in effect until 2007.188
In practice, the government’s specifications in Facilities Acquisition contracts often include more than just a generic description of the industrial facilities to be constructed. For example, at NWIRP No. 464, the United
States specified the wells that provided water for industrial purposes, the
traps and drains in the plant floors that captured industrial wastewater, the
recharge basins that returned industrial wastewater to the Long Island aquifer, and the sewers and pipes that integrated these facilities.189 Likewise, the
United States specified the industrial equipment that would populate the
newly constructed industrial space, including thousands of pieces of industrial equipment necessary to manufacture naval aircraft.190 The requisite
186. U.S. Dep’t of Navy, Emergency Plant Facility Contract, DANOa-10, at 2 (Dec. 29,
1941) [hereinafter Contract No. DANOa-10] (directing the emergency government-funded
construction of certain GOCO facilities at NWIRP No. 464).
187. Contract No. DANOa-10, supra note 186; U.S. Dep’t of Navy, Emergency Plant Facilities Contract, NOd-1571 (Nov. 4, 1940) [hereinafter Contract No. NOd-1571]; U.S. Dep’t of
Navy, Emergency Plant Facilities Contract, NOd-2377 (Oct. 14, 1941) [hereinafter Contract
No. NOd-2377]; U.S. Dep’t of Navy, Emergency Plant Facilities Contract, NOa-45
(Apr. 16, 1942) [hereinafter Contract No. NOa-45]; U.S. Dep’t of Navy, Emergency Plant Facilities Contract, NOa-125 (Sept. 30, 1942) [hereinafter Contract No. NOa-125] [hereinafter
EPF Contracts]; U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-255 ( June 21, 1943)
[hereinafter Contract No. NOa-255]; U.S. Dep’t of Navy, Contract for Plant Facilities,
NOa-1031 (Nov. 16, 1943) [hereinafter Contract No. NOa-1031]; U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-1024 (Nov. 30, 1943) [hereinafter Contract No. NOa-1024];
U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-1045 ( July 18, 1944) [hereinafter Contract No. NOa-1045] [hereinafter CPF Contracts].
188. This provision was initially promulgated at 32 C.F.R. §§ 7.702-2 and 7.703-2. See 32
C.F.R. § 7.702-2 (1965) (“The Contractor . . . shall acquire, construct, or install the Facilities,
and perform the work related thereto, described in the Schedule.”); 29 Fed. Reg. at 14,823; see
also 32 C.F.R. § 7.703 (1965). The 1964 variant of 32 C.F.R. §§ 7.702-2 and 7.703-2 remained
unchanged throughout the history of the ASPR and the DAR. See 32 C.F.R. §§ 7-702.2, 7-703.2
(1983) (containing final issuance of the DAR under the Code of Federal Regulations, incorporating 1964 variant of §§ 7.702-2 and 7.703-2). A virtually identical provision was incorporated
into the FAR when it was first promulgated in 1984, which remained substantively unchanged
until it was removed and reserved on May 15, 2007. FAR 52.245-10(b) (1984) (containing the
initial FAR provision for Facilities Acquisition contracts: “The Contractor . . . shall acquire,
construct, or install the facilities and perform the related work as described in the Schedule.”);
see also 48 Fed. Reg. 42,587 (Sept. 19, 1983) (containing initial promulgation of FAR 52.245-10);
72 Fed. Reg. 27,364 (May 15, 2007) (removing and reserving FAR 52.245-10). The ASPR used a
X.XXX-XX citation format until the 1976 edition of the Code of Federal Regulations, at which
point the format changed to X-XXX.XX until the promulgation of the FAR in 1984. Compare,
e.g., 32 C.F.R. pt. 7 (1976) with 32 C.F.R. pt. 7 (1974).
189. 1946 SUMMARY OF FACILITIES CONTRACTS 4 (1946) (summarizing of key terms from
NWIRP No. 464 construction contracts following World War II).
190. CPF Contracts, supra note 187, at 49 (“All items of the Plant Facilities, other than Civil
Works . . . shall be . . . called the Machinery, and shall be acquired and installed in accordance
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equipment is precisely specified—often down to the manufacturer and model
number—and includes equipment that require or directly relate to the use
(and potential release) of hazardous substances: furnaces, salt baths, chemical
storage tanks, acid proof bricks and cement, and even trichloroethylene
(TCE) degreasers.191
The government reinforced these “specifications” requirements with a series of related provisions concerning changes, inspections, and approvals.
First, Facilities Acquisition contracts largely prohibited the GOCO contractor from making any changes or alterations to the GOCO’s design specifications without the prior written consent of the government.192 Second, the
United States ensured it had virtually unlimited inspection and supervision
rights with respect to its GOCO facilities.193 Finally, the United States
with the lists and descriptions in Appendix A. . . .”). The EPF Contracts broadly define “Emergency Plant Facilities” to include all work performed under each Emergency Plant Facilities
Contract, which includes the acquisition and installation of industrial equipment specified in Appendix A to each EPF Contract.
191. See, e.g., Contract No. DANOa-10, supra note 186 (App’x A) (specifying purchase of Detrex model 800 trichloroethylene (TCE) degreaser); Emergency Plant Facilities Contract, NOa125, supra note 187 (App’x A) (specifying purchase of two Detrex model 800 TCE degreasers).
192. See, e.g., CPF Contracts, supra note 187, at 49 (“The Contractor may at any time make
changes in Appendix A with the written consent of the Contracting Officer.”); EPF Contracts, supra
note 187, at 2 (“The Contractor may at any time make changes in, additions to or deletions from
the drawings, specifications and lists of machinery . . . provided that . . . if any such change . . . will
cause substantial delay . . . or will result in an [increase in] cost . . . the written consent of the
Contracting Officer to such change . . . shall be obtained.”). A similar clause was mandated by
the ASPR. 32 C.F.R. §§ 7.702-4, 7.703-4 (1965) (containing ASPR-required “Changes” clause
for Facilities Acquisition contracts providing only for changes to the Facilities or Schedule
as directed by the government’s Contracting Officer); 29 Fed. Reg. at 14,822. This ASPR provision remained unchanged throughout the history of the ASPR and the DAR. See 32 C.F.R.
§§ 7-702.4, 7-703.4 (1983) (containing final promulgation of DAR incorporating 1964 variant
of ASPR 7.702-4, 7.703-4). Substantively similar clauses were incorporated into the FAR and
remain in effect today. FAR 52.243-1, 52.243-2 (1984) (containing “Changes” clauses for
Fixed Price and Cost Reimbursement contracts).
193. See, e.g., EPF Contracts, supra note 187, at 20 (“The Contracting Officer . . . shall at all
times be afforded proper facilities for inspection of the Emergency Plant Facilities, both during
and after construction, and shall at all reasonable times have access to the premises, work and
materials. . . .”); CPF Contracts, supra note 187, at 5 (“From time to time as the acquisition,
construction and installation of the Plant Facilities proceeds, the said facilities shall be inspected,
and accepted or rejected on behalf of the Department . . . by the Inspector of Naval Aircraft, and
. . . by the Officer-in-Charge.”). The ASPR mandated the use of a similar clause in all Consolidated Facilities and Facilities Acquisition contracts. 32 C.F.R. §§ 7.703-6, 7.702-6(a) (1965)
(containing ASPR-required “Inspection” clause for Facilities Acquisition contracts stating,
“The Facilities and work called for by this contract shall be subject to inspection and test by
the Government.”); 29 Fed. Reg. at 14,823. This clause was retained throughout the history
of the ASPR and the DAR. See 32 C.F.R. §§ 7-702.6(a), 7-703.6 (1983) (containing final promulgation of the DAR incorporating 1964 variant of ASPR 7.703-6, 7.702-6(a)). The most notable
change in this provision came with the initial promulgation of the FAR in 1984, which placed a
much more significant inspection burden on the contractor (rather than the government) to ensure compliance with contract requirements. FAR 52.246-12 (1984) (containing Inspection of
Facilities and Inspection of Construction clauses, respectively, providing, “The Contractor
shall maintain an adequate inspection system and perform such inspections as will ensure that
the work . . . conforms to contract requirements.”); 48 Fed. Reg. 42,598 (Sept. 19, 1983). However, the government continued to retain broad inspection and supervision rights to ensure facilities constructed with U.S. funds “strictly compl[ied]” with government requirements. Id.
Legacy Costs of War and the “GOCO Model”
289
expressly reserved to itself the right to “approve” of the GOCO facilities
both during and after construction.194
While these contract clauses provided the United States with exceptional
control over the design and construction of GOCO facilities, there remained
the possibility that a GOCO contractor would alter the GOCO facilities
after they were initially constructed or acquired. The government mitigated
this possibility through its Consolidated Facilities and Facilities Use contracts.195 These contracts commonly include provisions that prohibited the
contractor from altering virtually any aspect of the GOCO facilities without
the government’s prior, express approval.196
These facilities contract provisions raise a number of challenges for the
U.S. government in shifting the expense of environmental remediation at
GOCO facilities onto its former GOCO contractors. First, the government
(“All work shall be conducted under the general direction of the Contracting Officer and is subject to Government inspection and test at all places and at all reasonable times before acceptance
to ensure strict compliance with the terms of the contract.”). These provisions remained in effect
until the 2007 revision to the FAR, although certain inspection rights remained. 72 Fed. Reg.
27,364, 27,381, 27,394 (May 15, 2007) (removing and reserving FAR 52.246-10, but retaining
FAR 52.246-12); FAR 52.245-1(g) (providing government inspection rights with respect to
“property management plan[s], systems, procedures, records, and supporting documentation
that pertains to Government property . . . includ[ing] all site locations.”).
194. See, e.g., CPF Contracts, supra note 187, at 2 (“The acquisition, construction and installation . . . of land, land improvements, buildings, building improvements and building installations . . . shall be subject to approval and supervision by an Officer-in-Charge . . . ; this includes
approval of plans and specifications, costs, subcontractors, subcontracts, architects, engineers
and fees.”); Contract No. NOa-45, supra note 187, at 3; Contract No. NOa-125, supra note
187, at 3 (“[N]one of the items of the Emergency Plant Facilities shall be acquired, constructed,
or installed unless the Contracting Officer . . . shall have first approved the plans and specifications therefore, the purchase price thereof, the subcontractor supplying or constructing the
same, and the terms of any subcontract. . . .”). Similar mandatory clauses were incorporated
into the ASPR and remained unchanged through the DAR. 32 C.F.R. §§ 7.703-6, 7.702-6(b)
(1965) (containing ASPR-required “Inspection” clause for Consolidated Facilities and Facilities
Acquisition contracts, stating, “The Contracting Officer may at any time require the Contractor
to remedy . . . any Facilities or work which are defective or otherwise not in conformity with the
requirements of this contract.”); 29 Fed. Reg. at 14,823; see also 32 C.F.R. §§ 7-702.6(b), 7-703.6,
(1983) (containing final promulgation of the DAR incorporating 1964 variant of ASPR 7.703-6,
7.702-6(b)). The FAR does not include a separate contract provision regarding government “approval” (beyond FAR 52.246-10 and 52.246-12, discussed supra note 167), but instead conditions payment upon final acceptance by the government. See FAR 46.501 (1984); 29 Fed.
Reg. at 14,823; see also FAR 46.501 (2007).
195. See generally 32 C.F.R. §§ 7-702, 7-704 (1984) (containing ASPR and DAR Consolidated
Facilities and Facilities Use contract provisions, respectively); FAR 52.245-9 (containing FAR
Use and Charges contract provisions).
196. See, e.g., U.S. Dep’t of Navy, Facilities Management Contract, NOw 6116-u, at 12
(Apr. 1, 1963) [hereinafter Contract No. NOw 6116-u] (“The Contractor shall not construct
or make . . . any Civil Works improvement to buildings or land owned or leased by the Government, or any Civil Works alteration . . . until such letter agreement . . . shall have been executed
by both parties. . . .”); 32 C.F.R. § 7.705-7(a) (1965) (containing optional ASPR provision for
Facilities Use contracts stating, “The Contractor shall not construct or make, at its expense,
any fixed improvement to, or structural alteration in the nature of, buildings or land owned
or leased by the Government, without prior written approval of the Contracting Officer.”);
32 C.F.R. § 7-705.7 (1983) (containing identical DAR provision); FAR 52.245-7(d)(7) (1984);
but see 72 Fed. Reg. 27,364, 27,383 (May 15, 2007) (removing and reserving FAR 52.245-7).
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cannot credibly disclaim knowledge of the industrial waste practices of its
GOCO facilities because the industrial waste-processing infrastructure literally had been designed by the contractor and approved by the government
before, during, and after construction.197 Second, the government cannot
fairly blame its contractors for not changing the industrial process designs
at GOCO facilities on their own because the government expressly forbade
its contractors from making any such changes without its prior written approval.198 Finally, the United States cannot blame its contractors for failing
to bring industrial waste processing deficiencies to its attention because the
government ensured it had extensive access and inspection rights over its
GOCO facilities at all times.199 In combination, these facility contract provisions ensured that the government had nearly absolute power over its
GOCO facilities. These same provisions—which, in many cases, were still
prescribed under the FAR until at least 2007—help demonstrate that the
U.S. government assumed the risk and responsibility for facility-related environmental contamination at GOCO facilities.
2. Facilities Contracts: Title
GOCO facilities contracts routinely state that the government holds legal
title to GOCO facilities.200 This is hardly notable—after all, the United
States did pay for these “government-owned” facilities. What is notable,
however, is the breadth of these title-vesting clauses. In many cases, the government takes title not only in the GOCO facilities as they exist, but also to
any future changes, additions, or alterations to the facilities, and to any other
item or component (such as industrial equipment) that is reimbursed under
government contracts in connection with the facilities.201 Contractors have
pointed to the government’s extensive ownership rights in GOCO facilities
to argue that the government, rather than the contractor, should bear a significant allocation of environmental responsibility under CERCLA.202
197. Contract No. NOw 6116-u, supra note 196, at 12.
198. Id.
199. Id.
200. CPF Contracts, supra note 187, at 5; 32 C.F.R. §§ 7.702-15, 7.703-12, 7.704-9 (1965)
(containing ASPR mandatory “title” clauses for Consolidated Facilities, Facilities Acquisition,
and Facilities Use contracts, respectively, in first promulgation of facilities contract clauses
under the ASPR); 32 C.F.R. §§ 7-702.15, 7-703.12, 7-704.9 (1983); FAR 52.245-7(d), 52.24510(c), 52.245-11(c) (1984); FAR 52.245-1(e); see also 32 C.F.R. § 13.405 (1954) (containing general ASPR policy requiring unspecified contract provision for all Facilities contracts retaining
title in the government or transfers title to the government “at the earliest practicable time”);
17 Fed. Reg. 11,315, 11,315–16 (Dec. 13, 1952).
201. See 17 Fed. Reg. at 11,317.
202. See generally Cadillac Fairview/Cal., Inc. v. Dow Chem. Co., Nos. 83–8034 MRP, 93–
7996 MRP, 1997 WL 149196, at *19 (C.D. Cal. Feb. 21, 1997) (holding the United States “responsible for any share of the response costs under CERCLA which might otherwise be attributable to the Rubber Companies”).
Legacy Costs of War and the “GOCO Model”
291
3. Facilities Contracts: Allocation of Risk
The government recognizes that there are certain risks associated with the
use of industrial facilities. Facilities may be damaged or destroyed over time,
and industrial processes may harm neighbors or other third parties. Government regulations require the use of three related contract provisions to allocate responsibility for these risks at GOCO facilities.203 The first provision is
the “Liability for the Facilities” clause: “The Contractor shall not be liable
for any loss of or damage to the Facilities, or for expenses incidental to
such loss or damage. . . .”204 As stated, this mandatory clause allocates the
risk of loss of or damage to the GOCO facilities to the government—not
the contractor. There are, however, three general exceptions: (a) loss or damage caused by the willful misconduct or lack of good faith of the contractor’s
officers, directors, or senior managerial employees;205 (b) loss or damage
that the contractor is otherwise responsible for under the terms of the
contract;206 and (c) loss or damage for which the contractor is insured or
203. See, e.g., 32 C.F.R. § 7.702-18 (1965).
204. 32 C.F.R. §§ 7.702-18, 7.703-16, 7.704-14 (1965) (containing mandatory ASPR “Liability for the Facilities” clause for Consolidated Facilities, Facilities Acquisition, and Facilities Use
contracts, respectively); 32 C.F.R. §§ 7.702-18, 7.703-14, 7.704-14 (1972) (September 1970
amendment); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1979) (October 1976 amendment);
32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1983); FAR 52.245-8(b) (1984); see also 29 Fed.
Reg. 14,813, 14,826 (Oct. 31, 1964) (containing initial promulgation of Facilities Contract provisions); Armed Services Procurement Regulations, 36 Fed. Reg. 7887, 7935 (Apr. 28, 1971) (to
be codified at 32 C.F.R. pt. 7) (September 1970 amendment); 48 Fed. Reg. 42,585–86 (Sept. 19,
1983) (containing initial FAR promulgation of clause); 60 Fed. Reg. 48,218 (Sept. 18, 1995)
(containing non-substantive amendment to all contract clauses in FAR part 52); Federal Acquisition Regulation; Certification Requirements, 62 Fed. Reg. 233, 239 ( Jan. 2, 1997) (amending
portion of subsection (f ) concerning evidence of insurance); Federal Acquisition Regulation;
FAR Case 2004-025, Government Property, 72 Fed. Reg. 27,364, 27,384 (May 15, 2007) (removing and reserving clause). Substantially similar variants of this clause are also found in
pre-ASPR facilities contracts. See, e.g., CPF Contracts, supra note 187, at 6 (“The Contractor
shall not be responsible to the Department for any loss of or damage to the Plant Facilities . . .
whether or not caused by the negligence of the Contractor, its agents, servants or employees. . . .”); U.S. Dep’t of Navy, Agreement Amending Emergency Plant Facilities Contract
No. Noa-45, at 4 (May 11, 1944) [hereinafter Amended Contract No. Noa-45] (“The Government assumes the risk of loss of or damage to the Emergency Plant Facilities, whether or not
caused by the negligence of the Contractor, its agents, servants or employees, including expenses
incidental to such loss or damage. . . .”); Contract No. NOw 6116-u, supra note 196, at 4 (“The
Contractor shall not be liable for loss of or damage to the Facilities, or for expenses incidental to
such loss or damage.”).
205. For purposes of this article and ease of reference, “senior managerial employees” refers
to:
managers, superintendents, or other equivalent representatives, who [have] supervision or direction of (A) all or substantially all of the Contractor’s business; or (B) all or substantially all
of the Contractor’s operations at any one plant or separate location, in which the Facilities are
installed or located; or (C) a separate and complete major industrial operation in connection
with which the Facilities are used.
32 C.F.R. § 7.702-18(a)(i) (1965) (defining ASPR); see also 32 C.F.R. § 7-702.18(a)(i) (1983)
(identical DAR definition); FAR 52.245-8(c) (1984).
206. 41 C.F.R. § 3-56.713 (1974).
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expressly required to be insured under the terms of the contract.207 These
exceptions raise two important points.
The first point concerns the scope of the exception relating to willful misconduct or lack of good faith. By the plain language of the government’s “Liability for the Facilities” clause, mere negligence on the part of the contractor does not shift the risk of loss from the government to the contractor.208
Likewise, even willful misconduct or lack of good faith by the contractor’s
low-level employees will not shift the risk of loss to the contractor, unless
that misconduct or lack of good faith is by one of the contractor’s officers,
directors, or senior managerial employees.209 This is a remarkably narrow
exception, which effectively places the risk of any loss to the facilities on
the government—unless that loss is caused by (a) the willful misconduct or
lack of good faith of (b) a handful of the contractor’s most senior officers,
directors, and managerial personnel.
The second point concerns the “insurance” exception, which shifts the
risk of loss for the facilities back to the contractor if the loss was insured
or should have been insured pursuant to the contract.210 While this clause
has the potential to narrow the government’s allocation of risk for facilities
loss, the government largely eliminated this exception through another
clause in the “Liability for the Facilities” provision: “Unless expressly directed in writing by the Contracting Officer[], the Contractor shall not include as an element of price or cost under any contract with the Government
any amount on account of the cost of insurance (including self-insurance)
against any form of loss or damage to the Facilities. . . .”211
207. 32 C.F.R. §§ 7.702-18(a)(iv)–(v), 7.703-16, 7.704-14 (1965); 32 C.F.R. §§ 7.702-18,
7.703-14, 7.704-14 (1972) (containing September 1970 amendment to include conclusive presumption against contractor following notification by Contracting Officer to contractor’s officers, directors, or similar high-level supervisory personnel of disapproval of contractor’s “Maintenance” or “Property Control” programs); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1979)
(October 1976 amendment); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1983); FAR 52.2458(c) (1984); see also sources cited supra note 204. Similar exceptions are contained in contracts
executed prior to the ASPR. See, e.g., CPF Contracts, supra note 187, at 6; Amended Contract
No. NOa-45, supra note 204, at 4.
208. See 32 C.F.R. § 7-702.18 (1965).
209. Id. § 7.702-18(a)(i).
210. Id. § 7.702-18(a)(iii)–(iv).
211. Id. §§ 7.702-18(c), 7.703-16, 7.704-14; 32 C.F.R. §§ 7-702.18(c), 7-703.14, 7-704.14
(1983); FAR 52.245-8(f ) (1984); see also 29 Fed. Reg. at 14,826 (containing initial promulgation
of Facilities Contract provisions); 48 Fed. Reg. at 42,585–86 (containing initial FAR promulgation of clause); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all contract
clauses in FAR part 52); 62 Fed. Reg. at 239 (amending portion of subsection (f ) concerning
evidence of insurance); 72 Fed. Reg. at 27,384 (removing and reserving clause). Pre-ASPR facilities contracts often were even more explicit:
The Government hereby requests the Contractor not to carry or incur the expense of, any
insurance against any form of loss of or damage to the Emergency Plant Facilities during the
ownership thereof by the Government. . . . The Contractor agrees that if any insurance
against any form of loss of or damage to Emergency Plant Facilities shall be carried by the
Contractor . . . no cost of such insurance . . . will be charged directly or indirectly to the Government. . . .
Legacy Costs of War and the “GOCO Model”
293
Simply put, the contractor could obtain insurance coverage for the government’s facilities—but the government refused to pay for it. In practice,
the government did not require its contractors to obtain comprehensive general liability insurance coverage over government-owned property.212 This
practice was the result of a broader policy by the government to self-insure
government-owned property (including GOCO facilities), believing that
such an approach would ultimately reduce the cost of goods.213 The government continued its self-insurance policy through at least the 2000s.214
The issue of insurance leads to the second government-mandated Facilities Contract provision relating to allocation of risk: the “Insurance; Liability
to Third Persons” clause: “The Contractor shall procure and thereafter
maintain workmen’s compensation employer’s liability, comprehensive general liability (bodily injury) and comprehensive automobile liability (bodily
injury and property damage) insurance with respect to performance under
this contract. . . .”215 As discussed above, the government has long favored
a policy of self-insuring government-owned property. The “Insurance; Liability to Third Persons” clause provides a limited exception to that policy
with respect to certain third-party injuries. This exception is limited in the
Amended Contract No. NOa-45, supra note 204, at 4 (amending article 3(b) of Contract No.
NOa-45); U.S. Dep’t of Navy, Agreement Amending Emergency Plant Facilities Contract
No. DANOd-2377 (Apr. 28, 1943) [Amended Contract No. DANOd-2377]; see also CPF Contracts, supra note 187, at 6.
212. See generally 32 C.F.R. § 7.702-18 (1965) (containing all ASPR-required Facilities Contract provisions, none of which requires the contractor to obtain comprehensive insurance coverage over the government facilities); 32 C.F.R. §§ 7-702.18 (1983) (same under the DAR);
FAR 52.245 (1984).
213. See, e.g., U.S. COMPTROLLER GEN., PSAD-75-105, EXTENDING THE GOVERNMENT’S POLICY OF SELF-INSURANCE IN CERTAIN INSTANCES COULD RESULT IN GREAT SAVINGS 1, 9–11 (1975)
(discussing the government’s—and specifically the DoD’s—“long-established policy for selfinsuring its property” and proposing that the policy be extended to achieve additional cost savings); see also, e.g., Fed. Housing Admin., Comp. Gen. B-7067, at 800 (Comp. Gen. Mar. 20,
1940) (reciting government-wide self-insurance policy in context of Federal Housing Authority
request in 1940); D.C. GEN. ACCOUNTING OFF., B-287209, PURCHASE OF COMMERCIAL INSURANCE AGAINST CATASTROPHIC RISKS 1–2 (2002) (reciting government-wide self-insurance policy
in 2002).
214. See U.S. COMPTROLLER GEN., supra note 213, at 34.
215. 32 C.F.R. §§ 7.203-22(a), 7.702-19, 7.703-15 (1965) (containing ASPR clauses for Consolidated Facilities and Facilities Acquisition contracts); 32 C.F.R. § 7.203-22(a) (1968) (1966
amendment); 32 C.F.R. §§ 7-203.22(a), 7-702.19, 7-703.15 (1983); FAR 52.228-7, 52.245-7( j),
52.245-10(f ) (1984) (containing FAR Consolidated Facilities and Facilities Acquisition contract
provisions); see also 29 Fed. Reg. at 14,827 (containing initial promulgation of Facilities Contract
provisions); 32 Fed. Reg. 5508 (Apr. 4, 1967) (containing substantially similar December 1966
amendment to § 7.203-22); 48 Fed. Reg. at 42,544 (containing initial FAR promulgation);
55 Fed. Reg. 52,799 (Dec. 21, 1990) (amending FAR 52.228-7 to allow agencies to set limits
on indemnification); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all contract clauses in FAR part 52); Federal Acquisition Regulation; Subcontracting Plans, 61 Fed.
Reg. 2638, 2639 ( Jan. 26, 1996) (removing two “alternate” provisions from FAR 52.228-7 that applied to contractors with partial or complete tort immunity, and corresponding non-substantive
amendments to FAR 52.245-7 and 52.245-10); 70 Fed. Reg. 43,583 ( July 27, 2005) (correcting
typographical error in FAR 52.245-10); 72 Fed. Reg. at 27,382 (removing and reserving
FAR 52.245-7 and 52.245-10).
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context of environmental remediation actions, where the “injury” is typically
to property rather than person.216
In accordance with the government’s general policy in favor of selfinsurance, this third-party liability provision allocates the uninsured risk of
third-party loss to the government:
The Contractor shall be reimbursed . . . (ii) for liabilities to third persons for loss
or damage to property . . . or for death or bodily injury, not compensated by insurance or otherwise, arising out of the performance of this contract, whether or
not caused by the negligence of the Contractor, its agents, servants, or employees . . . and expenses incidental to such liabilities. . . .217
Under the terms of this government-mandated clause, the contractor is entitled to contractual reimbursement for any liability it may suffer to a third
party that is not compensated by insurance. As with the standard “Liability
for the Facilities” clause, there are exceptions for (a) loss or damage caused
by the willful misconduct or lack of good faith of the contractor’s officers,
directors, or senior managerial employees;218 (b) loss or damage that the
contractor is otherwise responsible for under the terms of the contract;219
and (c) loss or damage for which the contractor is insured or expressly required to be insured under the terms of the contract.220 Unlike the “Liability
for the Facilities” clause, the “Insurance—Liabilities to Third Persons”
clause plainly states that the contractor is entitled to reimbursement for
such liabilities even if they result from the contractor’s negligence.221
The third government-mandated Facilities Contract clause relevant to the
allocation of risk is the “Indemnification of the Government” clause:
216. It is worth emphasizing that the “Insurance—Liability to Third Persons” clause is not a
required (or optional) clause in Facilities Use contracts. See 32 C.F.R. § 7.704 (1965); 32 C.F.R.
§ 7-704 (1983); FAR 52.245-11 (1984). Third-party injuries arising from use of the facilities
under a Facilities Use contract are addressed in the “Indemnification of the Government” contract provision, discussed infra Part IV.D.3.
217. 32 C.F.R. § 7.203-22(c) (1965); 32 C.F.R. § 7.702-19 (1965) (containing ASPR clause
for Consolidated Facilities and Facilities Acquisition contracts, cross-referencing ASPR 7.20322); 32 C.F.R. § 7.203-22(c) (1968); 32 C.F.R. §§ 7-203.22(c), 7-702.19, 7-703.15 (1983);
FAR 52.228-7, 52.245-7( j), 52.245-10(f ) (1984); see also 29 Fed. Reg. at 14,827 (containing initial promulgation of Facilities Contract provisions); 32 Fed. Reg. at 5508 (containing substantially similar December 1966 amendment to § 7.203-22); 48 Fed. Reg. at 42,544 (containing initial FAR promulgation); 55 Fed. Reg. at 52,799 (amending FAR 52.228-7 to allow agencies to
set limits on indemnification); 60 Fed. Reg. at 48,218 (containing non-substantive amendment
to all contract clauses in FAR part 52); 61 Fed. Reg. at 2639 (removing two “alternate” provisions from FAR 52.228-7 that applied to contractors with partial or complete tort immunity, and
corresponding non-substantive amendments to FAR 52.245-7 and 52.245-10).
218. FAR 52.228-7(e)(3).
219. FAR 52.228-7(e)(1).
220. 61 Fed. Reg. at 2639.
221. “The Contractor shall be reimbursed . . . for liabilities to third persons . . . whether or not
caused by the negligence of the Contractor, its agents, servants, or employees. . . .” 32 C.F.R.
§ 7.203-22(a) (1965); 32 C.F.R. § 7-203.22 (1983) (identical DAR provision); FAR 52.228-7(c)
(1984) (substantively similar FAR provision); see also sources cited supra note 217; 70 Fed. Reg.
at 43,583 (correcting typographical error in FAR 52.245-10); 72 Fed. Reg. at 27,383 (May 15,
2007) (removing and reserving FAR 52.245-7 and 52.245-10).
Legacy Costs of War and the “GOCO Model”
295
Except as provided in the “Insurance—Liability to Third Persons” clause, the
Contractor shall indemnify and hold the Government harmless against claims
for injury to persons or damage to property of the Contractor or others arising
from the Contractor’s possession or use of the Facilities. However, the provisions
of the Contractor’s related procurement contracts shall govern the Government’s
assumption of liability for such claims arising out of or related to the performance
of each such related procurement contract and involving the possession or use of
the facilities.222
Generally, this clause allocates the risk of third-party injury arising out of
“possession or use” of the facilities to the contractor, subject to two key
exceptions. First, in the case of Consolidated Facilities and Facilities Acquisition contracts, this clause is expressly subordinate to the “Insurance—
Liability to Third Persons” clause described above, which generally requires
government reimbursement of contractor liabilities incurred in the performance of the contract that are not covered by insurance.223 To the extent
this clause has any meaning in such contracts, it appears limited to thirdparty injuries occasioned by “possession or use” of the facilities that is not
connected with the performance of the underlying Facilities Contract.
Second—and most importantly for most GOCO contractors—the “Indemnification of the Government” clause does not require the contractor to indemnify the government for third-party injuries when the government’s facilities
are being used in the performance of a government procurement contract.224
Commercial work performed at a GOCO facility is another story. Commercial
work could generally not exceed 25 percent of the workload at a GOCO.225 As
discussed below, government procurement regulations routinely allocate the
222. 32 C.F.R. §§ 7.702-20, 7.703-16, 7.704-15 (1965) (containing ASPR clauses for Consolidated Facilities, Facilities Acquisition, and Facilities Use contracts, respectively, with the “Insurance—Liability to Third Persons” reference deleted from the Facilities Use clause); 32
C.F.R. §§ 7-702.20, 7-703.16, 7-704.15 (1983); FAR 52.245-7( j), 52.245-10(f ), 52.245-11(i)
(1984); see also 48 Fed. Reg. at 42,583–84, 42,587, 42,588–89 (containing initial FAR promulgation); 50 Fed. Reg. 26,904 ( June 28, 1985) (containing non-substantive amendment to FAR
52.245-11); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all contract
clauses in FAR part 52); 61 Fed. Reg. at 2639 (removing two “alternate” provisions from
FAR 52.228-7 that applied to contractors with partial or complete tort immunity, and corresponding non-substantive amendments to FAR 52.245-7 and 52.245-10); Federal Acquisition
Regulation; Geographic Use of the Term “United States,” 68 Fed. Reg. 28,079, 28,087
(May 22, 2003) (containing non-substantive amendment to FAR 52.245-11); 70 Fed. Reg. at
43,583 (correcting section references in FAR 52.245-10 and 52.245-11); 72 Fed. Reg. at
27,383 (removing and reserving FAR 52.245-7, 52.245-10, and 52.245-11).
223. See, e.g., compare 32 C.F.R. § 7.203-22(c) (1968) with 32 C.F.R. § 7.702-20 (1965).
224. 32 C.F.R. § 7.702-20 (1964) (stating that indemnification is not required in areas governed by an “Insurance—Liability to Third Persons” clause)
225. 32 C.F.R. §§ 7.702-23, 7.704-16 (1965) (containing ASPR “Notice of use of the facilities” clauses for Consolidated Facilities and Facilities Use contracts, respectively, stating, “The
Contractor shall notify the Contracting Officer in writing whenever: (i) use of the Facilities for
Government work is less than seventy-five percent (75%) of the total use of the Facilities. . . .”);
32 C.F.R. §§ 7-702.23, 7-704.16 (1983) (containing substantially similar DAR clauses); FAR
52.245-7(f ), 52.245-11(e) (1984) (containing FAR clauses identical to DAR clauses); see also 72
Fed. Reg. at 27,364 (removing and reserving FAR 52.245-7 and 52.245-11); FAR 52.245-9(c)
(authorizing commercial use of government facilities without limitation, but subject to rental
charge and government right to terminate such use at any time).
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risk of third-party loss arising out of the performance of government procurement contracts to the government, not the contractor.226
In combination, these three government-mandated provisions allocating
risks for Facilities Contracts demonstrate the allocation of such risks to
the government. Subject to certain very limited exceptions, the risks of (a) facilities loss or damage, and (b) liability for third-party injuries arising out of
the performance of Facilities Contracts rest with the government rather than
the contractor. The only risk clearly allocated to the contractor is the risk of
liability for third-party injuries arising out of possession and use of the facilities, but even that allocation is limited to the contractor’s use of the facilities
for purely commercial purposes—a situation that should account for no
more than 25 percent of a typical GOCO facility’s historical industrial manufacturing. This allocation of virtually all facility-related risks to the government is not surprising in light of the government’s desire to keep its cost of
goods low and its attendant policy of self-insuring government property. As
the practical embodiment of that policy, these contract provisions reflect a
carefully bargained-for exchange between the government and its GOCO
contractors: the GOCO contractors would further reduce the cost of
goods produced at GOCO facilities by avoiding the expense of most insurance, but, in return, the government had to assume the insurable risk of facility loss or damage as well as the risk of liabilities to third parties occasioned by the performance of government contracts.
The crucial legal question is whether these mandatory “Allocation of
Risk” contract provisions apply toward legacy GOCO facility environmental
contamination—and therefore relieve a GOCO contractor of liability for
such contamination. In the only case to interpret any of these clauses to
date, a contractor successfully invoked the “Liability for the Facilities”
Clause in this fashion.227 In ConocoPhillips, the United States filed a CERCLA
cost recovery action against the successor of its GOCO contractor at the
NWIRP in McGregor, Texas, after the discovery of substantial soil and
groundwater contamination emanating from the GOCO site.228 The contractor filed a motion to dismiss the government’s CERCLA action, arguing, in
part, that it was not liable because its operations were governed by a series
of contracts that contained the “Liability for the Facilities” clause.229 The
court examined the clause in light of the governing procurement regulations
at that time (1951) and concluded that the clause is “broad enough . . . to protect [the contractor] from liability under CERCLA.”230 Notably, the
226. See discussion infra Part.IV.E.2.
227. See United States v. ConocoPhillips Co., No. W-11-CV-167, 2012 WL 4645616, at *8–9
(W.D. Tex. Sept. 30, 2012).
228. Id. at *1, *5.
229. Id. at *4–7. The ConocoPhillips clause is effectively identical to the other clauses recited in
this Part: “Contractor shall not be liable for any loss of or damage to the facilities provided hereunder or for expenses incidental to such loss or damage. . . .” Id. at *7.
230. See id. at *9.
Legacy Costs of War and the “GOCO Model”
297
ConocoPhilips court concluded that the “Liability for the Facilities” clause is
broad enough include liability for groundwater contamination that extended
off-site from the GOCO facility.231
4. Facilities Contracts: Taxes
Another potentially important provision that may be found in pre-ASPR
GOCO Facilities contracts (particularly those executed during World
War II) is the “Taxes” clause. Generally, this clause states that the U.S. government will either exempt the GOCO contractor from liability for “taxes”
or “charges” incurred in connection with use of the facility, or reimburse the
GOCO contractor for such “taxes” or “charges.”232 Under the ASPR, DAR,
and FAR, the nearest variant of the World War II-era “Taxes” clause is the
“Federal, State, and Local Taxes” clause of government Procurement Contracts.233 The “Taxes” clauses are discussed further below in the context of
Procurement Contracts.234
5. Other Facilities Contracts
While the primary “Facilities Acquisition,” “Facilities Use,” and “Consolidated Facilities” contracts are often the most important Facilities Contracts
for purposes of allocating bargained-for risk and environmental responsibility, other facilities contracts may be useful in establishing certain key facts.
For example, the U.S. government may enter into contracts concerning
the maintenance or capital improvement of its existing facilities.235 These
contracts may be embodied in a separate Facilities Contract,236 or they
may be a supplement or modification to a governing Facilities Use contract,
or they may appear to be an entirely different contract, such as a Facilities
Maintenance Contract.237 Whatever their title, these subsidiary facilities
contracts may demonstrate the government’s continuing awareness of and
responsibility for the industrial waste infrastructure and processes that service a particular GOCO facility. Occasionally, these subsidiary facilities contracts may also contain valuable admissions against interest.238
231. Id.
232. See, e.g., CPF Contracts, supra note 187, at 21. The ASPR, the DAR, and the FAR do
not contain standardized taxes provisions for Facilities contracts. See, e.g., 32 C.F.R.
§§ 7.701–705-13 (1965); 32 C.F.R. §§ 7-702.12, 7-706.4 (1983); FAR 52.245 (1984).
233. See, e.g., 32 C.F.R. §§ 7.103-10, 11.401 (1954); 32 C.F.R. § 11.401-2 (1976); FAR
52.299-3.
234. See discussion infra Part IV.E.4.
235. 32 C.F.R. § 7.701 (1965).
236. W. NOEL KEYES, GOVERNMENT CONTRACTS UNDER THE FEDERAL ACQUISITION REGULATION 1020 (3d ed. 2003); Jules M. Lipton, Contractual Arrangements Covering the Use of Government Property by Defense Contractors, 32 FORDHAM L. REV. 217, 224 (1963).
237. See, e.g., Skip Kirchdorfer, Inc. v. United States, 14 Cl. Ct. 594, 597 (1988) (providing
example of of a facility maintenance contract because Skip Kirchdorfer, the contractor, was
awarded a contract by the Department of the Air Force to perform maintenance services at
the Patrick Air Force Base).
238. See, e.g., U.S. Dep’t of Navy, N00019-91-E-9001, at 1–2 (Mar. 11, 1991) [hereinafter
Contract No. N00019-91-E-9001] (directing GOCO contractor to rehabilitate a portion of
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E. Procurement Contracts
While Facilities Contracts generally address the construction and use of
GOCO facilities over time, GOCO Procurement Contracts are specifically
directed toward the production of particular goods by the contractor at a
GOCO facility.239 Not all Procurement Contracts are of equal import because a handful of Procurement Contracts may account for a significant
percentage—or even a significant majority—of all manufacturing operations
conducted at a GOCO facility.240
1. Procurement Contracts: “Government Property” Provision
The government tied its Facilities Contract clauses to GOCO Procurement Contracts through the mandatory use of the “Government Property”
provision. As the name suggests, the Government Property provision governs the use of government property in the performance of the Procurement
Contract.241 The most important aspect of the “Government Property”
Navy Weapons Industrial Reserve Plant (NWIRP) 464 by “[r]eplac[ing] three underground
storage tanks that do not meet Environmental Protection Act requirements”); U.S. Dep’t of
Navy, Amendment/Modification No. P00009, N00019-95-E-0043, at 4 (Sept. 9, 1998) [hereinafter Contract No. N00019-95-E-0043] (“Review of historical documents indicates that the
Contractor acted in good faith during the period of occupancy and prior to a change in environmental regulations.”).
239. The ASPR refers to Procurement Contracts as “Supply Contracts” and divides such contracts into “Fixed Price” and “Cost Reimbursement” contracts. See 32 C.F.R. §§ 7.100, 7.200
(1965). Unless otherwise stated, the distinction between Fixed Price and Cost Reimbursement
Procurement Contracts is not directly relevant to the clauses discussed in this part. Note, however, that certain other clauses contained in Cost Reimbursement type contracts may support
contractors seeking reimbursement for environmental remediation costs incurred in connection
with such contracts. See, e.g., 32 C.F.R. § 7.203-4 (1954) (containing ASPR provision addressing
“Allowable cost[s]” under Cost Reimbursement contracts); FAR 31.2 (discussing allowability).
240. See Letter from L.B. Richardson, Contracting Officer, Bureau of Aeronautics, U.S.
Dep’t of Navy, to Grumman Aircraft Eng’g Corp. ( Jan. 4, 1944).
241. 32 C.F.R. §§ 7.203-21, 13.503 (1954) (containing mandatory ASPR “Government Property” clause for Cost Reimbursement-type Supply contracts, cross-referencing ASPR 13.503); 17
Fed. Reg. 11,315 (Dec. 13, 1952) (containing initial promulgation of ASPR “Government Property” clause for Cost Reimbursement-type Supply contracts). The “Government Property” clauses
for Procurement contracts are some of the most commonly amended clauses in the ASPR and
FAR, yet none of these amendments have a significant impact on the analysis presented in this article. In the interest of brevity, this article will not detail the amendments to this provision for
Fixed Price contracts, which generally match amendments made to the corresponding Cost Reimbursement contract provision. Amendments to this clause for Cost Reimbursement contracts include: 32 C.F.R. §§ 7.203-21, 13.503 (1961) (May 1960 amendment); 32 C.F.R. §§ 7.203-21,
13.503 (1962); 32 C.F.R. § 7.203-21 (1966) (February 1965 amendment); 32 C.F.R. § 7.203-21
(1972) (September 1970 amendment); 32 C.F.R. § 7-203.21 (1983) (containing final publication
of the DAR, incorporating September 1970 amendment); FAR 52.245-5 (1984) (containing substantially similar FAR “Government Property” clause for Cost Reimbursement contracts); 22 Fed.
Reg. 11,040, 11,061 (Dec. 31, 1957) (containing December 1957 amendment to ASPR 13.503,
amending paragraph (i) “to authorize the omission of inventory schedules for production
scrap”); 23 Fed. Reg. 6345, 6350 (Aug. 19, 1958) (containing August 1958 amendment to
ASPR 13.503, amending paragraph (b) to incorporate “title” guidance from the DoD 7800.6
(Nov. 1, 1957), and paragraph (c) to fully incorporate the recordkeeping provisions of ASPR
30.2; not separately published in the C.F.R.); 25 Fed. Reg. 14,283 (Dec. 31, 1960) (containing
May 1960 amendment to ASPR 13.503); 26 Fed. Reg. 5309 ( June 14, 1961) (containing May
1961 amendment to ASPR 13.503, amending paragraph (b) regarding title in manner not material
Legacy Costs of War and the “GOCO Model”
299
provision is that it extends not just to the government property (e.g., GOCO
facilities) provided to the contractor at the start of performance, but also to
any other property acquired by the contractor in the course of performance
for which the government pays:
(b) Title to all property furnished by the Government shall remain in the Government. Title to all property purchased by the Contractor, for the cost of which the
Contractor is entitled to be reimbursed . . . shall pass to and vest in the Government upon delivery of such property by the vendor. Title to other property, the
cost of which is reimbursable to the Contractor under this contract, shall pass
to and vest in the Government upon (i) issuance for use of such property in the
performance of this contract, or (ii) commencement of processing or use of
such property in the performance of this contract, or (iii) reimbursement of the
cost thereof by the Government, whichever first occurs.242
As in GOCO Facilities Contracts, the government’s title to “government
property” is not affected by its “incorporation or attachment” to any property
not owned by the government, and the government retains broad “access”
rights to the “government property.”
(c) Title to the Government property shall not be affected by the incorporation or
attachment thereof to any property not owned by the Government . . . .
***
(g) The Government shall at all reasonable times have access to the premises
where any of the Government property is located.243
Likewise, the government expressly refuses to pay for any insurance coverage
that would protect against loss or damage to the “government property,” and
it allocates the risk of loss or damage to itself:
(f ) (i) The Contractor shall not be liable for any loss of or damage to the Government property, or for expenses incidental to such loss or damage. . . .
(ii) The Contractor shall not be reimbursed for, and shall not include as an item of
overhead, the cost of insurance, or any provision for a reserve, covering the risk of
loss of or damage to the Government property. . . .244
to discussion above); 26 Fed. Reg. 9641 (Oct. 12, 1961) (containing August 1961 amendment to
ASPR 13.503, amending paragraph (i) concerning inventory schedules due to Contracting Officer
upon completion of contract); 30 Fed. Reg. 1736 (Feb. 9, 1965) (containing non-substantive November 1964 amendment to ASPR 7.203-21 to cross reference § 13.703, and amendment to
§ 13.703 to incorporate provisions previously at § 13.503); 36 Fed. Reg. 7887, 7934 (Apr. 28,
1971) (to be codified at 32 C.F.R. pt. 7) (containing non-substantive September 1970 amendment
to ASPR 7.203-21 incorporating provisions previously at § 13.703 and revoking § 13.703); 48 Fed.
Reg. 42,478, 42,581–83 (Sept. 19, 1983) (containing initial FAR promulgation); 50 Fed. Reg.
26,904 ( June 28, 1985) (containing non-substantive amendment); 55 Fed. Reg. 3889 (Feb. 5,
1990) (containing non-substantive amendment to Alternate I language); 68 Fed. Reg. 28,079,
28,087 (May 22, 2003) (containing non-substantive amendment); 69 Fed. Reg. 17,741, 17,748
(Apr. 5, 2004) (containing amendments to paragraphs (i) and ( j) concerning scrap and abandonment procedures); 72 Fed. Reg. 27,364, 27,384 (May 15, 2007) (removing and reserving clause).
242. 32 C.F.R. § 13.503(b) (1954).
243. Id. § 13.503(c), (g).
244. 32 C.F.R. § 13.503(f )(ii) (1954). This provision contains exceptions that are substantially
identical to the exceptions to the mandatory “Liability for the Facilities” provision in Facilities
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The “title” aspects of this clause are particularly important in the context
of environmental contamination at GOCO sites. As drafted, this mandatory
ASPR clause ensures that the government holds legal title to anything it pays
for—such as chemicals used in the industrial manufacturing process (e.g., the
chemical compound TCE used for degreasing operations)—from the moment it is delivered to or used by the contractor, if not earlier.245 Often,
the government reinforces its ownership of these chemicals through the
use of supplemental provisions:
SECTION 22–TITLE AND IDENTIFICATION
The title to all materials, parts, assemblies, sub-assemblies, supplies, equipment
and other property for the cost of which the contractor is entitled to be reimbursed hereunder, except property to which the Government shall already have
title, shall automatically pass to and vest in the Government . . .
Such broad title-vesting protects the government if, for example, the contractor goes bankrupt before completing performance. The government protects itself in such a scenario because it would obtain physical control of the
materials for which it paid and be in a position to redirect those governmentowned materials to another contractor to provide the end product. However,
this provision is broad enough to ensure the government also owns the hazardous chemicals used in the manufacturing process as well as the byproducts and waste generated by that manufacturing process:
By virtue of the title-vesting provisions in its contracts for the manufacture of new
rocket engines, the United States owned the “materials” allocated to the contracts.
Once perchlorate was purchased and allocated . . . The United States held absolute title to and an ownership interest in this “material.”
***
The United States has not pointed to any clause in the title-vesting provisions that
excepts “waste” from Government ownership. . . . The courts favor a literal interpretation of the title-vesting clause. . . . The Government’s argument—that it is
not liable because it did not own the perchlorate after it became “waste”—
would create a loophole in the [CERCLA] statute that could be exploited by
other polluters, who could easily contract for a shift in ownership.246
The government’s broad title clause is consistent with another commonly
paired provision concerning the disposal of “salvage or scrap” materials that
are not consumed in the course of manufacturing the end product but retain
some inherent value:
SECTION 22–TITLE AND IDENTIFICATION
(d) It is contemplated that all such property will be used by the contractor for the
performance of this contract or of other cost-plus-fixed-fee contracts with the
Contracts. Compare id. § 13.503(f ) (1954) with 32 C.F.R. §§ 7.702-18, 7.703-16, 7.704-14
(1965).
245. See, e.g., 32 C.F.R. § 13.503(b) (1954).
246. American Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734, 2010 WL
2635768, at *28–29 (C.D. Cal. June 30, 2010).
Legacy Costs of War and the “GOCO Model”
301
Navy Department. However, as to any such property not immediately essential to
the performance of this contract, including salvage or scrap material, the contractor
with the written consent of the Bureau of Aeronautics Representative may, and at
the inspector’s written direction shall, sell, lend or transfer or otherwise dispose of
such property free and clear of any and all right, title or interest of the Government in and to the property transferred to such persons and upon such terms
and conditions as the inspector may approve, ratify or direct. The proceeds, if
any, of any of such transfers and dispositions shall be retained by the contractor
and . . . applied in reduction of payments otherwise due to the contractor. . . .247
This clause ensures that the contractor will not enjoy additional windfall
profits from the disposal of unused materials that have value. It is not, however, a right for the government to convert unilaterally a U.S. liability, such
as chemical byproducts and process waste, into the contractor’s liability. The
problem for the government is that, as with many other provisions discussed
above, all scrap disposal decisions remain in the hands of the government.
The contractor must dispose of the unused scrap “materials” (with value)
as directed or approved by the government.
These “materials” title-vesting clauses in Procurement Contracts are relevant to whether the government can be held liable as a CERCLA “arranger.”248 The government cannot disclaim its ownership of the hazardous
substances used in—or wastes generated by—the industrial processes used
to manufacture its goods. Likewise, the government cannot disclaim its authority over the hazardous materials—the contract language expressly vests disposal decisions and ownership in the government. These clauses standing alone
are relevant to the CERCLA liability analysis for “arranger” liability.249
2. Procurement Contracts: Insurance; Liability to Third Persons
GOCO Procurement Contracts also mirror Facility Contract provisions
through the mandatory use of the “Insurance; Liability to Third Persons”
clause:
(a) The Contractor shall procure and thereafter maintain workmen’s compensation employer’s liability, comprehensive general liability (bodily injury) and comprehensive automobile liability (bodily injury and property damage) insurance
with respect to performance under this contract. . . .
....
(c) The Contractor shall be reimbursed . . . (ii) for liabilities to third persons for
loss or damage to property . . . or for death or bodily injury, not compensated by
insurance or otherwise, arising out of the performance of this contract, whether or
247. U.S. Dep’t of Navy, Contract No. NOa(s)-1679, at 18 (Apr. 1, 1944) (emphasis added);
see also U.S. Dep’t of Navy, Contract No. NOw(A) 65-0065-f, at 67 (Mar. 4, 1965) (containing
similar clause in “Progress Payments” contract provision).
248. See, e.g., Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 122 (D.D.C. 2014)
(explaining the elements of “arranger liability” analysis), aff ’d, 833 F.3d 225 (D.C. Cir. 2016).
249. See, e.g., id. (explaining arranger liability requires ownership of the hazardous substances
as well as evidence that the government planned for, controlled, or took intentional steps to dispose of the substances).
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not caused by the negligence of the Contractor, its agents, servants, or employees
. . . and expenses incidental to such liabilities. . . .250
This is the exact same provision discussed previously in the context of Consolidated Facilities and Facilities Acquisition contracts.251 Briefly, this clause
(a) requires the contractor to obtain certain limited forms of insurance covering third-party liability and (b) allocates the risk of uninsured third-party
liabilities to the government.
The government’s mandatory inclusion of this clause in its Procurement
Contracts is important for two reasons. First, this provision completes the
allocation of risk for GOCO facilities. While this provision was incorporated
by reference into Consolidated Facilities and Facilities Acquisition contracts,
it was not incorporated into Facilities Use contracts. Instead, pursuant to the
“Indemnification of the Government” provision, Facilities Use contracts allocate the risk of third-party liability to the contractor, subject to the terms
of any underlying Procurement Contract. The mandatory use of this provision in Procurement Contracts ensures it is the government—not the
contractor—that bears the risk of third-party liabilities when GOCO facilities are used in the performance of government contracts. The contractor
bears the risk of third-party liability when GOCO facilities are used in the
performance of purely commercial ventures.
Second, this clause preserves the government’s self-insurance policy for
purposes of its Procurement Contracts, thereby ensuring the U.S. government obtains its goods at the lowest possible cost. Just as the government refuses to pay for insurance coverage for third-party liabilities (beyond the limited forms prescribed by regulation) under its Facilities Contracts, the
government also refuses to pay for such insurance for the use of its facilities
in the performance of government Procurement Contracts. When combined
with the government’s allocation of the risk of uninsured loss to itself, these
standard contract clauses strongly discourage GOCO contractors from obtaining comprehensive general liability insurance coverage—coverage that
would have extended to environmental contamination.
250. 32 C.F.R. § 7.203-22 (1954); see also 32 C.F.R. § 7.203-22 (1965) ( January 1960 amendment); 32 C.F.R. § 7.203-22 (1968) (December 1966 amendment); 32 C.F.R. § 7-203.22 (1983)
(incorporating ASPR December 1966 amendment); 17 Fed. Reg. 11,315, 11,316 (Dec. 13, 1952)
(containing initial ASPR promulgation); 25 Fed. Reg. 14,075, 14,198 (Dec. 31, 1960); 32 Fed.
Reg. 5508 (Apr. 4, 1967) (December 1966 amendment to subsection (c) not material to discussion above). This provision was modified under the FAR to allow for the possibility of government approval of additional forms of insurance and to limit the government’s exposure for
uninsured third-party liabilities arising from contract performance to the availability of appropriated funds. FAR 52.228-7 (1984) (containing “Insurance—Liability to Third Persons” provision); see also 48 Fed. Reg. 42,544 (Sept. 19, 1983) (containing initial FAR promulgation);
55 Fed. Reg. 52,799 (Dec. 21, 1990) (containing non-substantive amendment to introductory paragraph); 61 Fed. Reg. 2639 ( Jan. 26, 1996) (containing various non-substantive amendments).
251. See discussion infra Part IV.D.3.
Legacy Costs of War and the “GOCO Model”
303
3. Design, Construction, Inspection, and Approval
Procurement Contracts typically require GOCO contractors to build the
requisite products according to government design specifications:
SECTION 3–DESCRIPTION OF ITEMS AND SPECIFICATIONS
Item 1: Each airplane shall be furnished completely assembled and ready for flight
in accordance with Specification SD-286-3 dated 30 September 1942 . . .252
As with Facilities Contracts, these design specification clauses are reinforced
with additional provisions relating to changes, inspections, and approvals.
H-16 CONFIGURATION CONTROL–ENGINEERING CHANGES, DEVIATIONS AND WAIVERS–DOD-STD-480A (1979 DEC) (NAVAIR 7-104.89(A))
(MOD)
(a) Any Engineering Change Proposal (ECP) . . . affecting an item being acquired
under this contract shall be in accordance with DOD-STD-480A . . . .
(b) No Class I engineering change shall be implemented until authorized by the
Contracting Officer (CO) . . . .253
252. U.S. Dep’t of Navy, Contract No. NOa(s)-846, supra note 26, at 3; see also Contract No.
NOw(A) 65-0065-F, supra note 247, at 3.
253. U.S. Dep’t of Navy, Contract with Grumman Aerospace Corp., N00019-82-C-0125,
at 7-38 (Feb. 5, 1982) [hereinafter Contract No. N00019-82-C-0125]; see also Contract No.
NOw(A) 65-0065-f, supra note 247, at 38; U.S. Dep’t of Navy, Contract No. F33657-70C717, at 34 (Nov. 1, 1970) [hereinafter Contract No. F33657-70-C717] (similar). Acquisition
regulations include similar provisions that restrict “changes” to those authorized by the government rather than the contractor. See, e.g., 32 C.F.R. §§ 7.103-2, 7.203-2 (1954) (containing
ASPR “Changes” provisions for Fixed Price and Cost Reimbursement Supply contracts, respectively, allowing changes by the “Contracting Officer”); 32 C.F.R. §§ 7.103-2, 7.203-2
(1960) ( January 1958 amendments); 32 C.F.R. § 7.203-2 (1966) (November 1964 amendment); 32 C.F.R. § 7.203-2 (1968) (April 1967 amendment); 32 C.F.R. §§ 7-103.3, 7-203.2
(1983) (incorporating January 1958 and April 1967 ASPR amendments, respectively); FAR
52.243-1, 52.243-2 (1984) (containing FAR “Changes” provisions). See also 21 Fed. Reg.
6403, 6410 (Aug. 25, 1956) (adding paragraph to ASPR 7.103-2 regarding “disposition of inventory resulting from changes”); 23 Fed. Reg. 3609, 3624 (May 27, 1958) (amending ASPR
7.103-2 and 7.203-2); 23 Fed. Reg. 4719, 4734 ( June 27, 1958) (amending caption of ASPR
7.103-2 and removing “Disposition of Inventory Resulting from Changes” paragraph); 28
Fed. Reg. 4879, 4887 (May 16, 1963) (containing minor revision to § 7.203-2); 30 Fed.
Reg. 1717, 1736 (Feb. 9, 1965) (containing November 1964 amendment to § 7.203-2); 32
Fed. Reg. 517, 517 ( Jan. 18, 1967) (October 1966 amendment); 48 Fed. Reg. 42,572,
42,572–73 (Sept. 19, 1983) (containing initial FAR promulgation); 52 Fed. Reg. 30,078,
30,079 (Aug. 12, 1987) (reinstating ASPR requirement for contractor to assert its right to
an adjustment); 54 Fed. Reg. 48,994, 48,995 (Nov. 28, 1989) (amending introductory text
of alternate clause in FAR 52.243-1). The earliest promulgation of the “Changes” provision
emphasized the right and obligation of the government to maximize the use of government
property in its procurement contracts: “In the interest of economy, the Government has a
basic responsibility fully to utilize its property. Consistent therewith the Government has reserved the right in the above clause to make changes in the amount of Government-furnished
property, including the right to increase the amount of Government-furnished property.” 32
C.F.R. § 7.203-2 (1954).
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SECTION 3–INSPECTION
All materials and workmanship shall be subject to inspection and test by the Government during manufacturing and at all other times and places . . . . Final inspection and acceptance will be made at the point of delivery . . . .254
The cumulative effect of these provisions is that the government controlled (1) what products would be built at its GOCO facilities and
(2) how those products would be built. The government’s control over the
industrial processes of its GOCO facilities was extensive. To provide one example, one contractor had to request permission from the Navy to apply one
coat of zinc chromate primer (rather than two) to the rivet heads of the aircraft it was producing.255 The government would be hard pressed to claim
that it did not know or could not control its GOCO contractors’ industrial
practices when it knew and controlled those processes literally down to the
individual screws.
4. Taxes
Government contracting regulations address the issue of taxes, which has
recently become relevant to GOCO contamination matters. With respect to
Fixed Price Contracts, the government typically provides that the contract
includes all taxes existing on the contract date and that the contract price
may be increased to compensate the contractor for any later-arising taxes256:
(b) Federal taxes. Except as may be otherwise provided in this contract, the contract
price includes all applicable Federal taxes in effect on the contract date.
....
254. Contract No. NOa(s)-846, supra note 252, at 4; see also Contract No. NOw(A) 65-0065-f,
supra note 247, at 13; U.S. Dep’t of Navy, Contract F33657-70-C-0717, at 34 (Nov. 1, 1970);
Contract No. N00019-82-C-0125, supra note 253, at 7-33 (similar). Acquisition regulations include similar provisions ensuring the government’s inspection rights with respect to both end
products and the materials that are used to create those end products. See, e.g., 32 C.F.R.
§§ 7.103-5, 7.203-5 (1954) (containing ASPR “Inspection” provisions for Fixed Price and
Cost Reimbursement Supply contracts, respectively); 32 C.F.R. § 7-103.5 (1960) (May 1958
amendment); 32 C.F.R. § 7-203.5 (1965) (May 1960 amendment); 32 C.F.R. § 7-203.5 (1976)
(containing first C.F.R. publication of October 1974 amendment); 32 C.F.R. §§ 7-103.5, 7203.5 (1983) (incorporating November 1982 and October 1974 amendments, respectively);
FAR 52.246-1, 52.246-2, 52.246-3 (1984) (addressing inspection requirements generally for
Fixed Price Supply contracts and Cost Reimbursement Supply contracts). See also 23 Fed.
Reg. at 3621 (revising § 7.103-5 to clarify that government elects whether to repair or replace
defective supplies and § 7.203-5 to conform to Standard Form 32); 23 Fed. Reg. 6339, 6347
(Aug. 19, 1958) (containing May 1958 revision to § 7.103-5); 25 Fed. Reg. 14,007, 14,196
(Dec. 31, 1960) (containing May 1960 revision to § 7.203-5); 29 Fed. Reg. 11,795, 11,820–21
(Aug. 19, 1964) (amending § 7.203-5 to add optional requirement for Military Specification
(MILSPEC) inspection system); 32 Fed. Reg. 16,405, 16,405 (Nov. 30, 1967) (containing
minor revision to § 7.203-5 regarding MILSPEC inspection system).
255. Letter from William T. Schwendler, Vice President & Chief Eng’g, Grumman Aircraft
Eng’g Corp., to Bureau of Aeronautics Representative, Grumman Aircraft Eng’g Corp.
(Sept. 14, 1944).
256. The Taxes Clause and the Shell and ExxonMobil decisions are discussed further in the
context of contract-based recovery of response costs from the government infra Part V.C.
Legacy Costs of War and the “GOCO Model”
305
(e) Price adjustment. If, after the contract date, (i) the Federal Government . . . either imposes or increases . . . any direct tax or any tax directly applicable to the
materials or components used in the manufacture or furnishing of the completed
supplies or services covered by this contract . . . and . . . the Contractor is obliged
to and does pay or bear the burden of any such tax . . . the contract price shall be
correspondingly increased. . . .257
With respect to Cost Reimbursement Contracts, government regulations
state that no similar provision is necessary because the government’s payment of such taxes is purely a question of allowability:
Cost-reimbursement contracts. No specific tax clause is required in any costreimbursement contract. In all such contracts the problem of Federal, State and
local taxes (which presents solely a question of allowability of costs in connection
with the performance of cost-reimbursement contracts) is covered in the contract
clause dealing with reimbursement of costs. . . .258
At first glance, the Taxes Clause appears directed towards taxes rather
than environmental liability under CERCLA. However, a variant of the standard Taxes Clause recited above has been interpreted by at least two federal
courts to include CERCLA costs incurred in connection with the performance
of the contract.259 In Shell Oil v. United States, the successors-in-interest to
various World War II aviation gas (avgas) contractors sued the United States
to recover CERCLA costs imposed against the contractors in connection
with certain World War II contracts.260 The United States and California
initially prevailed in imposing a percentage of CERCLA cost on its contractors.261 Following that outcome, the contractors filed a contract action
against the government under the Contract Dispute Act, arguing that the
Taxes Clause of their World War II-era contracts required the government
257. 32 C.F.R. §§ 7.103-10, 11.401 (1954); 32 C.F.R. § 11.401-1 (1965) (similar); 32 C.F.R.
§ 11.401-1 (1973) (similar) (containing first C.F.R. publication of November 1971 amendment;
see 32 C.F.R. § 7-103.10(e) (1983) (containing DAR provisions incorporating November 1971
ASPR amendment for “Advertised and Certain Negotiated Contracts” and July 1960 amendment for “Noncompetitive Negotiated Contracts”); FAR 52.229-3 (containing similar FAR provision stating that the contract price includes all existing federal, state, and local taxes and duties,
but that “[t]he contract price shall be increased by the amount of any after-imposed Federal
Tax”); 25 Fed. Reg. 14,076, 14,266 (Dec. 31, 1960); 26 Fed. Reg. 9625, 9640 (Oct. 12, 1961)
(containing August 1961 amendment of ASPR 11.401 to exclude state and local taxes); 29
Fed. Reg. 2837, 2837 (Feb. 29, 1964) (containing non-substantive amendment to introductory
paragraph of ASPR 11.401); 33 Fed. Reg. 7343, 7401 (May 18, 1968) (to be codified at 32
C.F.R. pt. 7) (containing non-substantive amendments to ASPR 11.401); 34 Fed. Reg. 9255,
9264 ( June 12, 1969) (to be codified at 32 C.F.R. pt. 11) (containing non-substantive amendment to ASPR 7.103-10 to correct references); 37 Fed. Reg. 12,549, 12,607 ( June 27, 1972)
(to be codified at 32 C.F.R. pt. 11) (containing November 1971 amendment to ASPR 11.401
“Advertised and Certain Negotiated Contracts,” revoking paragraph excluding adjustments
for employment taxes). Variations of this clause are also present in pre-ASPR Procurement Contracts at GOCO facilities. See, e.g., CPF Contracts, supra note 187, at 21.
258. 32 C.F.R. § 11.402 (1954); 32 C.F.R. § 11-402 (1983) (similar).
259. Shell Oil Co. v. United States, 751 F.3d 1282, 1296 (Fed. Cir. 2014); Exxon Mobil Corp. v.
United States, 101 Fed. Cl. 576, 579 (2011); see also Shell Oil Co. v. United States, __ Fed. Cl. __
(Jan. 6, 2017) (awarding contractors $99,590,847 under Taxes Clause for CERCLA clean-up costs).
260. Shell Oil Co., 751 F.3d at 1284–85.
261. See id. at 1285.
306
Public Contract Law Journal • Vol. 46, No. 2 • Winter 2017
to reimburse the contractors for these later-incurred CERCLA “charges.”262
The Federal Circuit concluded that
Contrary to the Government’s arguments, CERCLA costs are “charges” within
the meaning of the relevant contract provision: The avgas contracts promise reimbursement of “any new or additional . . . charges” the Government imposes on the
Oil Companies “by reason of the production, manufacture, sale or delivery of
[avgas].” CERCLA is a federal law requiring responsible parties to pay the
“costs of removal or remedial action” . . . and is thus a charge (i.e., cost) imposed
by a federal law. The plain language of the new or additional charges provision
thus requires the Government to indemnify the Oil Companies for CERCLA
costs incurred “by reason of ” the avgas contracts.263
It is too early to conclude whether the Shell and ExxonMobil avgas contract
cases will be limited only to contracts with Taxes Clauses that expressly incorporate the term “charges.” Similar clauses (including the term “charges”)
appear in various, but not all, World War II-era GOCO contracts.264 At a
minimum, it appears Shell and ExxonMobil provide GOCO contractors
with a creative opportunity to recoup environmental costs resulting from
World War II-era industrial production.265 If, however, the Shell and ExxonMobil holdings are extended to apply to the later ASPR/DAR version of the
Taxes Clause (either as a later-arising “tax” or “duty”), this clause may open
the door for contractors to shift their CERCLA liabilities to the government
through contracts that were performed a half-century ago.266
262. Id. at 1285, 1290. The Shell Taxes Clause reads: “Buyer shall pay . . . any new or additional taxes, fees, or charges . . . which Seller may be required by any municipal, state, or federal
law in the United States . . . to collect or pay by reason of the production, manufacture, sale or
delivery of the commodities delivered hereunder.” Id. at 1290.
263. Id. at 1292–93 (emphasis added).
264. A 1944 NWIRP 464 contract for the production of 500 F7F-1 fighter aircraft contains a
“Federal, State and Local Taxes” provision that reads, in relevant part:
[T]he Government wil [sic] issue appropriate tax exemption certificates . . . in respect of
any tax . . . or . . . similar tax or charge . . . imposed by the Federal Government . . . and directly
applicable to . . . the materials required or used in the production . . . or to the . . . production,
processing, manufacture, construction . . . or use of such supplies or materials . . . [provided
that] the Government . . . may reimburse the contractor for any such tax or charge . . . .
Contract NOa(s)-1679, supra note 247, at 22. Likewise, a 1948 NWIRP 464 contract with the
Navy and the Air Force for production of various aircraft contains a “Federal, State and Local
Taxes” provision that reads, in relevant part:
If, (i) after the date of this contract, the Federal Government shall impose or increase any
duty . . . or any . . . tax, or any other tax directly applicable to . . . the materials used in the
manufacture or production . . . or directly upon the . . . production, processing, manufacture,
construction . . . or use of such articles, work or materials, and (ii) the Government . . . does
not issue . . . a tax exemption . . . and (iii) the Contractor is required . . . to bear the burden of
such tax, then the prices stated herein shall be increased accordingly.
Dep’t of Navy, NOa(s)-9738, at 5 (May 12, 1948) [hereinafter Contract No. NOa(s)-9738].
265. On January 6, 2017, the Court of Federal Claims awarded four oil companies $99,590,847
on remand for the U.S. government’s breach of the Taxes Clause. Shell Oil Co. v. United States,
__ Fed. Cl. __ (Jan. 6, 2017).
266. Even if Shell and ExxonMobil are not extended to apply to the ASPR/DAR variant of the
Taxes Clause, contractors may still be able to rely on the reasoning of Shell and ExxonMobil to
argue that other ASPR/DAR-period contract clauses require the United States to reimburse
Legacy Costs of War and the “GOCO Model”
307
F. Government Contracts Reflect a Negotiated Balancing of Risk and
Profit so Contractors Would Not Have Limited Upside Potential and
Unlimited Downside Liability
Standard government contracts between the United States and its defense
contractors from World War II and thereafter evidence a carefully negotiated balancing of risk and reward for both sides. As the contract clauses discussed above demonstrate, the government knowingly accepted a significant
amount of risk in connection with government-owned facilities and the production of defense materials. In exchange, the government ensured it retained extraordinary control over the facilities and industrial processes
used to manufacture its goods—and the government used that control to
keep the cost of goods low. These contract provisions are directly relevant
when determining an appropriate allocation of CERCLA response costs between the government and its contractors. Additionally, certain provisions
may provide contractors after that CERCLA equitable allocation with a
contract-based avenue for recovery of any CERCLA costs imposed.
V. THREE PATHWAYS FOR RECOVERY
There are essentially three pathways for a defense contractor to recover
from the U.S. government for the legacy costs of war: (1) direct reimbursement from the United States under CERCLA sections 107 or 113 for the
United States’ share of liability;267 (2) direct reimbursement from the United
States under past government contracts for the contractor’s share of CERCLA
liability;268 and (3) indirect reimbursement of the contractor under existing
and future government contracts for environmental cleanup through increased overhead charges payable by the United States in its role as a “customer” under today’s government contracting rules of allowability.269 With
respect to each of these three avenues, the percentage allocation between the
government and contractor can be determined in litigation or negotiated
through a cost-sharing or “advance agreement.”270
A. Pathway No. 1: CERCLA Allocation Litigation
Defense contractors face the potential for “enormous liability under
CERCLA at numerous sites where they once cooperated with the government
environmental remediation costs. See, e.g., Contract No. NOw(s) 6116-u, supra note 196, at 12
(providing for indirect reimbursement to contractor via procurement contract allowability for
“any costs growing out of its performance of this contract” (if not otherwise directly reimbursed)
and directing contractor to “pay to the proper authority all . . . taxes, assessments, or similar
charges” (emphasis added)).
267. United States v. Shell Oil Co., 294 F.3d 1045, 1053 (9th Cir. 2002).
268. See E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1372 (Fed. Cir.
2004).
269. See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-92-253FS, DOD ENVIRONMENTAL
CLEANUP: INFORMATION ON CONTRACTOR CLEANUP COSTS AND DOD REIMBURSEMENTS 2–3 (1992).
270. KEYES, supra note 236, at 656.
AFP 36
Evendale,
OH
0%
10%
20%
30%
Three California privatelyowned Lockheed southern
California propellant plants
(Lockheed Martin)
Privately-owned aerospace plant (TDY
Holdings)
County-owned aviation facility (MiamiDade Cty.)
Privately-owned shipyard (State of Wash.)
50%
60%
“Unexcelled
Chemical”
NJ
Munitions
Site
U.S. CERCA Liability
40%
AISLIC and
Steadfast
Ins.
Whittaker
Site - U.S.
CERCLA
“owner”
and
“arranger”
at private
rocket
motor plant
70%
80%
90%
100%
NWIRP
Toledo, OH
AFP 44,
DOE
Tucson,
GOCO,
AZ; AFP
Canaan, CT
83,
Albuquerque,
NM;
NWIRP
Fridley,
MN
Shell Taxes Clause Case
AFP 14
Burbank,
CA
Privately-owned explosive plant (Taylor)
San Diego
Shipyards
DuPont at Morgantown Ordnance Works, WVA (GOCO)
Ford at Willow Run, MI (GOCO)
Contractor’s CERCLA Allocation to Be Reimbursed 100%
by U.S. via Contracts
Privately-owned Agent Orange herbicide
plants (Maxus Energy; Vertac Chem.)
Privately-owned zinc mine (East Bay Mun.
Util. Dist.)
Privately-owned FMC rayon plant in VA
Shell Oil “avgas” benzol waste at McColl, CA site
Cadillac Fairview at Torrance, CA (GOCO)
ConocoPhillips at NWIRP McGregor, TX (GOCO)
U.S. CERCLA Allocations in Military Procurement and Manufacturing Cases
Legacy Costs of War and the “GOCO Model”
309
in producing critical military and national-security products and services.”271
Since 1997, there have been dozens of settlements with the United States on
the allocation of GOCO cleanups, but only a handful of litigated CERCLA
liability and allocation decisions.272 There have also been five cases interpreting various provisions of standard government contracts in the context of
whether today’s CERCLA liabilities can be addressed by yesterday’s government contracts, some of which have been performed over a half-century ago.273
Government contracts are highly relevant for two purposes. First, government contracts are relevant to the threshold determination of CERCLA
“owner,” “operator,” and “arranger” liability and the equitable allocation
of that CERCLA liability. For instance, the contracts highlight the U.S. government’s promise to hold a contractor harmless and inform the court of the
relative degree of involvement and control.274 Second, once CERCLA liability is adjudicated and a percentage is allocated to a contractor, the contracts
serve the dual purpose of being a potential vehicle to reimburse the contractor for its allocated share.275 To compare, set forth above is a summary of
various allocation outcomes in the context of military procurement and manufacturing at both GOCO and non-GOCO facilities.
1. Cleanup Costs Are a “Cost of War”
At least four federal courts in three separate circuits (Third, Ninth, and
Federal) have described cleanup costs—at both government-owned and
contractor-owned facilities—arising from defense manufacturing as a “cost
of war” the U.S. government must assume. In each of these cases, the courts
have examined the governing contracts and the extent of the government’s
role in the industrial processes at the site to conclude that the United States
was liable for environmental remediation costs. Likewise, in each of these
cases, the courts have condemned the government’s revisionist attempts to
271. Brief of Plaintiff-Appellee Lockheed Martin Corporation at 51, Lockheed Martin Corp. v.
United States, No. 14-5302 (D.C. Cir. filed June 15, 2015), ECF No. 1557495 [hereinafter Lockheed Brief].
272. See, e.g., Cadillac Fairview/Cal., Inc. v. Dow Chem. Co., Nos. 83-8034 MRP (Bx), 937996 MRP (Bx), 1997 WL 149196 (C.D. Cal. Feb. 21, 1997) (Torrance, California, GOCO);
FMC Corp v. United States Dep’t of Commerce, 19 F.2d 833, 833 (3d Cir. 1994) (en banc)
(Front Royal, Virginia, facility); Shell Oil Co., 294 F.3d at 1045 (McColl, California, disposal facility); Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734, 2010 WL
2635768 (C.D. Cal. June 30, 2010) (Santa Clarita, California rocket fuel facility); Lockheed
Martin Corp. v. United States, 35 F. Supp. 3d 92, 97 (D.D.C. 2014) (three California rocket
fuel facilities), aff ’d, 833 F.3d 225 (D.C. Cir. 2016).
273. United States v. ConocoPhillips, No. W-11-CV-167, 2012 WL 4645616, at *8 (W.D.
Tex. Sept. 30, 2012); E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1373
(Fed. Cir. 2004); Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004) (en banc)
(B-24 “liberators” built at the Willow Run, Michigan, GOCO); Shell Oil Co. v. United States,
751 F.3d 1282, 1288–89 (Fed. Cir. 2014); Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576,
581 (2011).
274. Alfred R. Light, Restatement for Arranger Liability Under CERCLA: Implications of Burlington Northern for Superfund Jurisprudence, 11 VT. J. ENVTL. L. 371, 379–80 (2009).
275. See Shell Oil Co., 751 F.3d at 1292–93, 1296.
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foist these legacy costs of war on its contractors. In theory, as long as the
United States is liable as either a CERCLA owner, operator, or arranger,
or any combination of the three, a court has broad discretion to allocate
up to 100 percent liability to the United States as a “cost of war” on any defensible theory.276
a. Cadillac Fairview/California v. Dow Chemical Co.
One of the leading GOCO cases is Cadillac Fairview/California v. Dow
Chemical Co., which involved a plant in Torrance, California, that made precursor chemicals for synthetic rubber to benefit the U.S. rubber program.277
The U.S. government owned the land, equipment, and processing chemicals,
the onsite disposal ponds, and all materials purchased by the contractor.278
Dow operated the GOCO plant starting in 1943, but the U.S. government
“exercised pervasive control” over plant operations, including through the
applicable contracts, government specifications, inspector oversight, and
capital improvements.279 The U.S. government set production levels and
regularly referred to the contractor as its “agent.” 280
The U.S. government had “substantial expertise in the industrial production of synthetic rubber,”281 was aware that this production process generated waste, and agreed to Dow’s method of onsite disposal.282 A U.S. Rubber
Reserve official indicated that he favored ground disposal of waste at the
Torrance site.283 The U.S. government prepared reports of the plant’s
ground-based disposal.284 The U.S. government reimbursed the contractor
for the net cost of disposal; performed annual site inspections, including
waste handling; stationed one permanent onsite inspector; and occasionally
overrode the contractor’s objections to styrene reprocessing methods.285
The Cadillac Fairview/California court determined that the specific risk allocation arrangements in the contracts would be relevant to consider under
CERCLA for equitable allocation purposes.286 The contractor’s facility use
contract contained a then standard “Liability for the Facilities” clause, which
assigned risks to the U.S. government: “[The GOCO contractors] shall in no
event be liable for, and shall be held harmless against, any damage to or loss
276. See Cadillac, 1997 WL 149196, at *19; TDY Findings of Fact and Conclusions of Law,
supra note 134, at 28 (holding that district courts have the “discretion to decide what factors
ought to be considered, as well as the duty to allocate costs according to those factors” (quoting
Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1187 (9th Cir. 2000))).
277. Cadillac, 1997 WL 149196, at *1, *3.
278. Id. at *15.
279. Id. at *11.
280. Id. at *13–14.
281. Id. at *4.
282. Id. at *5.
283. Id.
284. Id.
285. Id. at *6, *14–15.
286. Id. at *16–17.
Legacy Costs of War and the “GOCO Model”
311
or destruction of property . . . in any manner, arising out of or in connection
with the work hereunder.”287
The Cadillac Fairview/California court held the United States liable as a
CERCLA “owner,” “operator,” and “arranger.”288 As such, the court equitably allocated 100 percent liability to the United States,289 reasoning,
among other things, that environmental remediation is a “cost of war”
that should be placed on society as a whole.
b. FMC Corp. v. United States
FMC Corp. v. United States is noteworthy because it resulted in significant
CERCLA “owner,” “operator,” and “arranger” liability for the United States
at a contractor-owned facility.290 FMC involved a 440-acre privately owned
rayon plant in Front Royal, Virginia.291 After Pearl Harbor, the U.S. government needed massive amounts of high-tenacity rayon for war-related
products, such as airplane and truck tires.292 The U.S. government designated high-tenacity rayon as a “critical” national defense product and commissioned the contractor to “convert its plant” into a war plant.293 The U.S.
government designed, supplied, and contracted for the installation of the
manufacturing equipment necessary to convert and expand the facility.294
All plans, specifications, and drawings for equipment and installation were
submitted to the U.S. government for approval.295 The U.S. government
protected the available textile labor force via draft deferments, directed
workers to the facility, and provided housing support.296 It supervised the
workers, had onsite representatives, and had the authority to call for the removal of workers.297 The U.S. government mandated the amount and selling
price of rayon, controlled the contractor’s profits, and selected the product’s
end users.298 The U.S. government built and owned a nearby plant to provide the raw materials necessary for production.299 If the FMC plant owner
did not comply with the government’s production directives, the facility
risked seizure.300
The U.S. government knew of the FMC facility’s waste disposal methods
and provided equipment for waste disposal.301 Environmental standards
287.
288.
289.
290.
291.
292.
293.
294.
295.
296.
297.
298.
299.
300.
301.
Id. at *15.
Id. at *16.
Id. at *19.
FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 834 (3d Cir. 1994).
Id. at 835–36.
Id. at 835.
Id. at 836.
Id. at 837.
Id.
Id.
Id. at 837–38.
Id. at 837, 843.
Id.
Id. at 836.
Id. at 835, 838.
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were “lax” compared to today’s standards.302 As the U.S. government ordered more high-tenacity rayon product, it produced more waste, more unlined waste basins were filled, and more basins were needed.303 The U.S.
government thus had a heavy hand in the amount of overall waste generated
at the FMC facility.304
The U.S. Environmental Protection Agency (EPA) sought to recover environmental response costs from the contractor’s successor-in-interest decades
after World War II concluded.305 The contractor’s successor responded by
suing the United States for CERCLA contribution.306 Shortly before trial,
the United States entered into a settlement agreement conceding CERCLA
“owner” liability (based on the government’s ownership of the industrial
equipment through 1948), but it contested “operator” and “arranger” liability.307 Under the terms of the settlement agreement, the United States
would accept eight percent “owner” liability, and if subsequently found liable
as a CERCLA “operator” and “arranger,” that liability would increase to
twenty-six percent.308 Thus, the only question left to decide in court was
whether the United States ought to pay a higher percentage under the settlement because of CERCLA “operator” and “arranger” liability.309
In a context limited to “war plants,” the Third Circuit applied a “substantial control” test310 in weighing whether the United States could be held liable as a CERCLA “operator.”311 The Third Circuit noted it would be “a
revisionist view of history” to ignore the nation’s overriding motivation for
the “efficient operation of the facility as a whole” during the war312 and ultimately concluded that the United States had “substantial control” of and
“active involvement” in the private textile rayon plant and was thus liable
as a CERCLA “owner,” “operator,” and “arranger.”313 The Third Circuit
held, “[A]t bottom our result simply places a cost of war on the United
States, and thus on society as a whole, a result which is neither untoward
nor inconsistent with the policy underlying CERCLA.”314
302. Id. at 835.
303. Id. at 837–38.
304. Id. at 838.
305. See id. at 834–35.
306. Id. at 834.
307. Id. at 838.
308. Id.
309. The United States also claimed sovereign immunity for Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) claims arising out of “wartime regulatory activities.” Id. at 835, 838–39. The court thoroughly examined and rejected this defense.
Id. at 838–42.
310. “Under this test, a corporation will be liable for the environmental violations of another
corporation if there is evidence that it exercised ‘substantial control’ over the other corporation.”
Id. at 843.
311. Id.
312. Id. at 845.
313. Id.
314. Id. at 846. Following this outcome, the United States has consistently resisted FMC’s
“substantial control” test to determine CERCLA “operator” liability at war plants. Most
Legacy Costs of War and the “GOCO Model”
313
c. Shell Oil Co. v. United States
Shell has significance for war plant cases in both the CERCLA allocation
and contract reimbursement contexts.315 The Ninth Circuit decided the
CERCLA allocation issues,316 and, as required by the Tucker Act, Shell’s
contract-based claims against the United States were transferred to and decided in the Court of Federal Claims and Federal Circuit.317
Shell arose from wartime aviation gas or “avgas” production and the use of
an off-site disposal facility in southern California known as the McColl
site.318 The war plant case spawned multiple trial court and appellate decisions on both coasts.319 The allocation case involved an avgas byproduct
known as benzol and turned upon whether the legacy liability of the byproduct is a “cost of war” that the U.S. public should pay.320 Applying its “moral
as well as legal sense,” the Shell trial court equitably allocated 100 percent of
the costs for benzol-related liability to the United States.321
d. Exxon Mobil Corp. v. United States
In Exxon Mobil Corp. v. United States,322 a Texas court recently addressed
“who pays, and how much” after the “nation’s need for wartime supplies
made during World War II and the Korean War left lasting environmental effects.”323 The case relates primarily to wartime avgas refining, and the court
found both the U.S. government and contractor liable under CERCLA.324
On partial summary judgment, the court focused on liability and left equitable
allocation for later proceedings, although the court indicated that the allocation will not be to Exxon Mobil’s liking because of the “limited nature of federal control over the refineries’ operation.”325
recently, the United States claims FMC’s relevance is “dubious” in light of United States v. Bestfoods, 524 U.S. 51 (1998), which addresses operator liability in an unrelated parent-subsidiary
context. See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521 (S.D. Tex. 2015).
315. United States v. Shell Oil Co., 294 F.3d 1045, 1045 (9th Cir. 2002); Shell Oil Co. v.
United States, 751 F.3d 1282, 1284–85, 1289 (Fed. Cir. 2014); Shell Oil Co. v. United States,
80 Fed. Cl. 411, 412, 414 (2008). The Shell contract case is famous because it rested not on the
open-ended language of Contract Settlement Act of 1944 made famous in FMC Corp., 29 F.3d
833, and Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004) (en banc), but on the
Taxes Clause.
316. Shell Oil Co., 294 F.3d at 1049.
317. Shell Oil Co., 751 F.3d at 1289; Shell Oil Co., 80 Fed. Cl. at 418.
318. Shell Oil Co., 294 F.3d at 1049, 1051.
319. See, e.g., GenCorp., Inc. v. Olin Corp., 390 F.3d 433 (6th Cir. 2004); Morton Int’l, Inc. v.
A.E. Stanley Mfg. Co., 343 F.3d 669 (3d Cir. 2003); Carson Harbor Vill., Ltd. v. Unocal
Corp., 287 F. Supp. 2d 1118 (C.D. Cal. 2003) (illustrating some of the cases the war plant
case spawned).
320. United States v. Shell Oil Co., 13 F. Supp. 2d 1018, 1027 (C.D. Cal. 1998).
321. Id. at 1030; accord Shell Oil Co., 294 F.3d at 1060–61 (“We therefore affirm the district
court’s allocation of 100% of the cleanup costs for benzol waste to the United States.”).
322. Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 490 (S.D. Tex. 2015).
323. Id.
324. Id. at 519.
325. Id. at 529, 537.
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At the start of World War II, predecessors of Exxon Mobil operated two
privately owned avgas refineries in Texas and Louisiana.326 During World
War II and the Korean War, these predecessors contracted with the U.S.
government to expand their avgas production and build additional plants
for the production of synthetic rubber.327 The U.S. government purchased
land adjacent to the refineries or leased land within the refineries to build
government-owned plants, often under separate construction contracts
with the oil companies.328 Four government-owned plants existed on the
Texas site and produced synthetic rubber, toluene, and avgas components.329
Unlike the privately owned refineries, the U.S. government typically owned
the synthetic rubber plants at the same facilities.330 Despite different ownership of the refineries and chemical plants (and even the property underneath
the buildings), they remained “sufficiently integrated at each site to be part
of the same ‘facility.’ ”331 Notably, the waste of the contiguous privately
owned and government-owned plants was released as part of the same operation, management, and purpose, rendering them all one CERCLA “facility.”332 After the wars, the oil companies purchased the GOCO plants.333
The U.S. government exercised significant control over the GOCO facilities, but substantially less control over the privately owned refineries. The
U.S. government regularly inspected the GOCO facilities,334 but it did
not operate the refineries, supervise employees, inspect, or make personnel
or labor decisions.335 The GOCOs shared some but not all the waste disposal and treatment facilities with the privately owned refineries.336 The
amount of waste overwhelmed available treatment systems and options,
and the war remained the higher priority.337 The U.S. government approved
a small waste mitigation project in Baton Rouge, but the contractor waited
until after the war to install it.338 The U.S. government controlled production and capped profits at six percent—and even renegotiated profits down
further, over protests from the oil companies.339
Under agreements with the states decades later, Exxon Mobil incurred
$71 million in remediation costs at the privately owned refineries, after
326. Id. at 497.
327. Id. at 490–91.
328. Id. at 499, 501.
329. Id. at 499–500.
330. Id. at 496 (noting that the U.S. Defense Plant Corporation arranged for the construction
of synthetic rubber plants known as “Plancors,” and “[u]nlike most avgas refineries, however, the
government—not the contracting companies—owned the Plancors.”).
331. Id. at 516, 518.
332. Id. at 519.
333. Id. at 501–02.
334. Id. at 526.
335. Id. at 498.
336. Id. at 501.
337. Id. at 502.
338. Id. at 502–03.
339. Id. at 496, 498.
Legacy Costs of War and the “GOCO Model”
315
which the contractor sued the United States under CERCLA for past and unknown future costs.340 The Exxon Mobil court understood the history of government control of industry during wartime, noting the United States “treated
all the nation’s refineries as units in one vast national refinery.”341 The U.S.
government needed the ultra-performance of avgas to achieve military victory,342 but decades later, the legacy “costs of war” continued to mount and
the government would not assume liability. The court held the United States
liable as a CERCLA “operator” for the chemical plants, but found insufficient
control of the contractor’s waste operations to hold the United States liable as
a CERCLA “operator” of the privately owned refineries.343
2. Under Federal Case Law, the Government Is a Potential CERCLA
“Owner” and “Arranger,” Even at 100 Percent Contractor-Owned Facilities
In 2010, Judge Howard Matz in the Central District of California issued a
series of seminal CERCLA rulings in the context of legacy contamination
arising from military production at a contractor-owned site.344 The site at
issue is the 996-acre Whittaker site in Santa Clarita, California.345 The
United States did not provide any facility funding or equipment, and no facilities contracts were at issue.346 These court opinions answer the basic
question of whether the United States can be an CERCLA “owner,” “operator,” or “arranger” at a 100 percent contractor-owned facility.
Steadfast Insurance was the first of these three cases to be decided by Judge
Matz.347 Steadfast Insurance had issued a ten-year policy to a new property
owner upon Whittaker’s sale of the contaminated California site in 1998 and
sought to hold the United States liable under CERCLA, in part as a site “operator.”348 Judge Matz granted summary judgment in favor of the United
States, finding that the U.S. government was not a CERCLA “operator”
340. Id. at 491, 503.
341. Id. at 498 (internal quotation marks omitted).
342. Id. at 494 (stating that the British Minister of Fuel and Power credited avgas with victory
in the Battle of Britain).
343. Id. at 491.
344. Steadfast Ins. Co. v. United States, No. CV-06-4686, 2009 WL 3785565, at *1 (C.D.
Cal. Nov. 10, 2009); Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV09–01734
AHM (RZx), 2010 WL 2635768 (C.D. Cal. June 30, 2010); Am. Int’l Specialty Lines Ins.
Co. v. United States, No. CV-09–01734, 2013 WL 135405 (C.D. Cal. Jan. 9, 2013).
345. Whittaker filed a separate CERCLA action against the United States in 2013, but that
case was later dismissed when Whittaker elected to pursue a section 107 joint and several liability action against the United States rather than a section 113 contribution action. Whittaker
Corp. v. United States, No. 2:13-cv-01741-FMO, slip op. at *1, *13–14. (C.D. Cal. Feb. 10,
2014), ECF No. 53.
346. Steadfast Ins. Co., 2009 WL 3785565, at *1 (involving site owned from 1942–67 by Bermite Powder Co., after which Whittaker owned the site, and “Whittaker was not required to
work on USA contracts”).
347. Steadfast Ins. Co., 2009 WL 3785565.
348. Complaint ¶¶ 65–66, Whittaker Corp. v. United States, No. 2:13-cv-01741-FMO-JC
(C.D. Cal. filed Mar. 11, 2013), ECF No. 1.
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at the Whittaker site because it did not manage the facility’s wastes under the
stringent and narrow Bestfoods standard.349
In 2009, while Steadfast Insurance remained pending, American International Specialty Lines Insurance Company (AISLIC) filed a separate CERCLA
action against the United States in connection with the same Whittaker facility.350 The court ultimately consolidated the Steadfast Insurance and AISLIC
cases.351 AISLIC incurred liability from legacy contamination in its role as
Whittaker’s insurer.352 From 1954 through 1987, over ninety percent of production at the Whittaker site involved ammunition manufacturing and military
rocket motor work for the United States.353 Notably, the site was not used
in support of government contracts prior to 1954, so no World War II-era
contracts were at issue.354 The first AISLIC case looked only at CERCLA
liability.355
In 2010, one year after the Steadfast Insurance CERCLA “operator” decision in favor of the government, Judge Matz found the United States to be
liable as both a CERCLA “owner” and “arranger” of the Whittaker site.356
At the outset, the court observed that the available Whittaker government
procurement contracts consistently contained the standard title-vesting clause
that assigned ownership of the production chemicals and byproducts to the
U.S. government.357 A literal reading of the title-vesting clause, the court reasoned, led to the conclusion that the United States owned all the production
chemicals and ultimately the waste.358 Citing Northrop Grumman Corp. v.
County of Los Angeles,359 the court rejected the U.S. government’s efforts to
repudiate title to the undesired byproducts of the government-owned raw
materials that were used to make and power its rockets,360 reasoning there
was nothing in the government procurement contracts that excepted the undesired waste from U.S. ownership.361 The court also noted the U.S. government owned the rocket motors that caused the perchlorate and solvent
349. Steadfast Ins., 2009 WL 3785565, at *8. The Bestfoods standard is discussed infra Part V.B.1.
350. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *1.
351. Consent Decree at 2, Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-0901734, (C.D. Cal. July 7, 2014), ECF No. 377 [hereinafter Consent Decree].
352. Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09–01734, 2010 WL
2635768, at *18 (C.D. Cal. June 30, 2010).
353. Id. at *2.
354. Id.
355. See generally id.
356. Id. *27, *30.
357. All contracts incorporated ASPR 7-104.25, later found at FAR 52.232. Id. at *5.
358. Id. at *6, *28.
359. Northrop Grumman Corp. v. Cty. of Los Angeles, 134 Cal. App. 4th 424 (Cal. Ct. App.
2005). The issue in Northrop Grumman was the extent to which a California county could tax “federal” property and whether the materials and supplies used in defense contracts by a contractor are
“federal” property. The California court held that standard title-vesting provisions in federal contracts sweep under U.S. government ownership all “supplies” (defined to include paints, chemicals,
oils, and acids) and “materials” (defined to include all “property incorporated into an end product
or consumed or expended in performing a contract”). Id. at 424, 428, 431–34.
360. See Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *29.
361. Id. at *28 (citing Northrop Grumman, 134 Cal. App. 4th at 433).
Legacy Costs of War and the “GOCO Model”
317
contamination,362 which, in combination with the U.S. government’s ownership of the chemicals and their byproducts, is sufficient to hold the United
States liable as an “arranger” under CERCLA.363
Separately, the U.S. government also owned certain manufacturing equipment used in support of Whittaker site industrial operations, which was
sufficient to hold the United States liable separately as an “owner” under
CERCLA.364 The court reasoned that “[u]nder CERCLA, ‘an owner of
equipment necessary to the operation of the [factory] line is no less an
‘owner’ than a part-owner of land.’ ”365 In sum, Judge Matz found the
United States liable as both a CERCLA “owner” and “arranger” at the privately owned Whittaker site, even though the government did not hold title
to any of the land or buildings.366
The second AISLIC case answered the question of CERCLA allocation as
between the U.S. government and, technically, the contractor’s insurer.367
The court openly criticized the allocation trial because both sides “cherry
pick[ed]” information to support their allocation positions.368 The court
started with a “base” allocation formula of twenty-five percent for “owner”
liability, fifty percent for “operator” liability, and twenty-five percent for “arranger” liability.369 In theory, being liable as either a CERCLA “owner,”
“operator,” or “arranger” is sufficient grounds in and of itself to be held
100 percent equitably responsible for any cleanup because courts enjoy
wide discretion in making such allocations,370 but the second AISLIC
court used its own baseline formula where all three needed to be shown separately to be 100 percent liable, and each carried different weight.
The United States had been previously determined to be zero percent liable as a CERCLA “operator” at the Whittaker facility by Judge Matz’s 2009
Steadfast Insurance summary judgment decision.371 Having found the United
States liable as a CERCLA “owner” and “arranger” in 2010, the maximum
liability that the court could assign to the United States under the baseline
formula would be fifty percent.372 Judge Matz factored in the relative
362. Id. at *24.
363. Id. at *28.
364. Id. at *26, *30.
365. Id. at *21 (quoting United States v. Saporito, 684 F. Supp. 2d 1043, 1057 (N.D. Ill. 2010)).
366. See id. at *1, *27, *29, *30.
367. See Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09–01734, 2013 WL
135405 (C.D. Cal. Jan. 9, 2013).
368. Id. at *1.
369. Id. at *4.
370. See generally Cadillac Fairview/Cal., Inc., Nos. 83-8034 MRP (Bx), 93-7996 MRP (Bx),
1997 WL 149196 (C.D. Cal. Feb. 21, 1997) (holding that courts can consider one factor, several
factors, or the totality of the circumstances to make equitable allocation decisions at GOCO and
non-GOCO facilities).
371. See Steadfast Ins. Co. v. United States, No. CV-06-4686, 2009 WL 3785565, at *8 (C.D.
Cal. Nov. 10, 2009).
372. Am. Int’l Specialty Lines Ins. Co., 2013 WL 135405, at *4 (holding CERCLA “owner” and
“arranger” liability carried a maximum twenty-five percent weight for each under the Judge
Matz base formula).
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knowledge of the parties, the level of care and cooperation, and the benefits
derived from the work to adjust the outcome a few percentage points up or
down.373 Judge Matz went so far as to reverse himself in the second AISLIC
decision by finding, without citing any authority, ownership responsibility of
the waste “should primarily rest with the contractor.”374 No new evidence or
law was offered to justify that sudden and unexplained reversal. Ultimately,
the court reached an equitable allocation of forty percent for the United
States and sixty percent for AISLIC.375 In 2013, both parties appealed the
allocation outcomes in the consolidated Whittaker site cases.376 In 2014,
the United States settled for a partial payment to AISLIC of past costs
and thirty-three percent liability for future costs.377
3. Partial Ownership of Manufacturing Equipment May Independently
Make the Government Liable as a CERCLA “Owner”
One common characteristic of GOCO plants is that the U.S. government
typically owned the vast majority of the manufacturing equipment at these
plants during key operational periods.378 Ownership of manufacturing equipment proved dispositive in 2011 when another California federal court held
the United States liable as a CERCLA “owner.”379 TDY Holdings operated
as a government contractor for over six decades at a San Diego-based aeronautical manufacturing facility where the government owned various manufacturing machinery and equipment for drones and unmanned aerial systems.380
The TDY Holdings case built upon the settled principle that equipment furnished by the government to contractors for weapon-manufacturing purposes
falls within the CERCLA definition of “facility.”381
Government ownership of manufacturing “facilities” also was a key consideration in the first AISLIC case.382 Highly relevant to the court’s CERCLA
analysis was the fact that the pertinent government contracts contained
title-vesting provisions specifying that the U.S. government held title to all
373. Id. at *5.
374. Id. at *8.
375. Id. at *5.
376. Consent Decree, supra note 351, at 2.
377. Id. at 9–10 (stating that the United States settled for $2,034,959 in “past costs” and
thirty-three percent in “future costs” as of 2010). The United States also settled the Steadfast
Insurance matter. Consent Decree at 2, Steadfast Ins. Co. v. United States, No. CV-06-4686,
(C.D. Cal. Nov. 10, 2009), ECF No. 250.
378. Various lists of manufacturing equipment requested from the government for the construction at Bethpage can be found in correspondence for emergency construction. See Letter
from E. Clinton Towl, Vice President, Grumman Aircraft Eng’g Corp., to U.S. Dep’t of
Navy (Mar. 9, 1945); Request for Equipment and Request for Additional Emergency Plant Facilities from E. Clinton Towl, Vice President, Grumman Aircraft Eng’g Corp., to U.S. Dep’t of
Navy (Mar. 30, 1945).
379. See TDY Holdings, LLC v. United States, No. 07 CV-0787, slip op. at 4–5, 6 (S.D. Cal.
July 15, 2011).
380. Id. at 2–3.
381. 42 U.S.C. § 9601(9) (2012) (CERCLA definition of “facility”).
382. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *24–25 (C.D. Cal. June 30, 2010).
Legacy Costs of War and the “GOCO Model”
319
raw materials used in the manufacturing processes—and those raw materials ultimately became the key sources of facility contamination.383 It does not matter
whether chemical byproducts are transferred from government-owned equipment to non-government-owned facilities, such as grounds or buildings; the
United States remains liable as an “owner.”384 Further, it is not necessary to
show which government-owned equipment is responsible for the contamination; it is sufficient to show that the government equipment was a “necessary
part” of the overall manufacturing process.385 According to the first AISLIC
court, military rocket engines whose contents were released into the environment became “facilities” within the broad meaning of CERCLA because military components are “equipment.”386
This vesting of title in the United States has been a standard feature of government contracts since at least the 1940s.387 The title-vesting provisions in
government contracts are “particularly compelling in the context of military
contracts, when the contracted-for goods are needed for national defense.”388
The byproducts of defense manufacturing from government-owned raw materials and chemicals impose CERCLA “owner” liability on the United States
“regardless of whether it had any control over the disposal activities.”389
In Elf Atochem North America, Inc. v. United States, another equipmentownership case, the U.S. government designated DDT as a “strategic pesticide” necessary for the country’s efforts in World War II and conceded that
its ownership of the DDT manufacturing equipment constituted “ownership” under CERCLA.390 The DDT byproducts and waste streams from
the government equipment were deposited onsite. The Elf Atochem court
found the government to be liable as a CERCLA “owner” because it
owned the “facilities” (i.e., DDT manufacturing equipment) that generated
the waste streams deposited at the contractor’s New Jersey facility.391
383. Id. at *6.
384. Id. at *22–23 (citing Elf Atochem N. Am. Inc. v. United States, 868 F. Supp. 707, 708
(E.D. Pa. 1994)).
385. Id. at *23 (citing United States v. Saporito, 684 F. Supp. 2d 1043, 1062 (N.D. Ill. 2010)).
386. Id. at *24.
387. See Northrop Grumman Corp. v. Cty. of Los Angeles, 134 Cal. App. 4th 424, 432–33
(2005) (reasoning that government title to “all property used in the performance of federal defense contracts under the title-vesting clause” has been well-settled under federal law for over
100 years since the seminal U.S. Supreme Court decision in United States v. Ansonia Brass & Copper Company, 218 U.S. 452, 466–67 (1910)).
388. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *25 (quoting Northrop Grumman,
134 Cal. App. 4th at 431, 433). The standard government contract language in Northrop Grumman states that the United States takes title to contractor property through the title-vesting provision of the “Progress Payments Clause,” codified at FAR 52.232-16(d):
(d) Title. (1) Title to the property described in this paragraph (d) shall vest in the Government. Vestiture shall be immediately upon the date of this contract, for property acquired or
produced before that date. Otherwise, vestiture shall occur when the property is or should
have been allocable or properly chargeable to this contract.
389. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *27.
390. Elf Atochem N. Am., Inc. v. United States, 868 F. Supp. 707, 709 (E.D. Pa. 1994).
391. Id. at 712–13.
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In short, federal courts have held that government ownership of nothing
more than certain manufacturing equipment at a 100 percent contractorowned site is enough to make the United States primarily liable as a CERCLA
“owner” because waste-generating equipment is “arguably more culpable”
than mere land ownership.392
B. Non-GOCO CERCLA Liability Cases Relied Upon by the United States
As discussed above, the body of CERCLA case law specific to GOCO facilities is limited and not particularly favorable to the U.S. government.393 In the
absence of GOCO cases favoring the United States, the U.S. government now
relies on a series of approximately nine non-GOCO decisions in an attempt to
mitigate its liability.394 Some of these cases involve factually distinguishable situations where the United States is acting in its role as a “market regulator”
rather than as a GOCO owner and operator. Others involve standard buyerseller commercial transactions where the United States is merely an ultimate
product consumer and, like all similarly situated non-governmental consumers,
is not liable as a CERCLA “operator” for legacy contamination at privately
owned plants. The extent of U.S. involvement in each of these cases is different
and far less substantial than the U.S. government’s typical involvement at a
GOCO facility.395
1. The United States v. Bestfoods CERCLA “Operator” Liability
Standard Is Unwarranted in GOCO Contexts
The U.S. opening position in CERCLA allocation actions at GOCO and
non-GOCO facilities often starts with a common refrain: under United States
v. Bestfoods, corporate parents are generally not liable for the environmental
392. United States v. Saporito, 684 F. Supp. 2d 1043, 1057 (N.D. Ill. 2010) (The “owner of
equipment necessary to the operation of the plating line is no less an ‘owner’ than a part-owner
of land.”). In Saporito, the United States argued in favor of CERCLA “owner” liability against a
private party based upon its mere ownership of the metal plating equipment from which releases
took place. Id. The Saporito court agreed. Metal plating lines are now deemed a “facility” under
CERCLA, separate and apart from land ownership itself. Id.
393. See Lockheed Martin Corp v. United States, 35 F. Supp. 3d 92, 120 (D.D.C. 2014)
(“While many CERCLA actions have been brought by government contractors against the
U.S. government, only a few appear to have reached the allocation stage.”), aff ’d, 833 F.3d
225 (D.C. Cir. 2016).
394. See United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); Steadfast Ins. Co. v. United
States, No. CV-06-4686, 2009 WL 3785565 (C.D. Cal. Nov. 10, 2009); Miami-Dade Cty. v.
United States, 345 F. Supp. 2d 1319 (S.D. Fla. 2004); E. Bay Mun. Util. Dist. v. United States,
142 F.3d 479 (D.C. Cir. 1998); Maxus Energy Corp. v. United States, 898 F. Supp. 399 (N.D.
Tex. 1995); United States v. Vertac Chem. Corp., 46 F.3d 803 (8th Cir. 1995); State of Wash.
v. United States, 930 F. Supp. 474 (W.D. Wash. 1996); United States v. Taylor, 1993 WL
760996 (W.D. Mich. 1993); Rospatch Jessco Corp. v. Chrysler Corp., 962 F. Supp. 998 (W.D.
Mich. 1995). These government cases are all cited in the recent decision, Exxon Mobil Corp. v.
United States, 108 F. Supp. 3d 486, 521–33 (S.D. Tex. 2015) and in Miami-Dade Cty., 345
F. Supp. 2d at 1340.
395. Even cases such as Exxon Mobil found the World War II GOCO cases to be different in
terms of the “pervasive levels of control.” 108 F. Supp. 3d at 527 (quoting Lockheed Martin Corp.,
35 F. Supp. 3d 148–49).
Legacy Costs of War and the “GOCO Model”
321
liabilities of their subsidiaries, and thus it follows that the United States cannot be liable for the environmental contamination that results from government work performed at GOCO or non-GOCO facilities.396 The U.S. government’s reliance on Bestfoods in GOCO cases is overstated and misplaced.
Bestfoods had nothing to do with government contracting or GOCO facilities.
The facility at issue in Bestfoods was a privately owned Michigan chemical
plant with no known government business.397 In 1989, the United States
sued a corporate parent (Bestfoods) seeking recovery of the subsidiary’s
(Ott Chemical Co.) highly expensive cleanup.398
Bestfoods is a corporate veil-piercing case in which the central question is
whether a corporate parent’s normal “limited liability” protections under
Michigan’s state corporate law can be overcome to hold the parent responsible for a subsidiary’s CERCLA liabilities.399 The Supreme Court reasoned
that nothing in CERCLA “purports to rewrite” the deeply ingrained state
corporate laws holding corporate parents separate and non-liable for a subsidiary’s environmental liabilities.400 Piercing the corporate veil is thus not a
foregone conclusion, the court attested, even after CERCLA became law in
1980 and even if a subsidiary is a polluter.401 In fact, the rule of limited corporate parent liability is not to be readily relaxed in the face of CERCLA:
“The critical question is whether, in degree and detail, actions directed to
the facility [not to the subsidiary corporation itself] by an agent of the parent
alone are eccentric under accepted norms of parental oversight of a subsidiary’s facility.”402 For example, if a parent observes all corporate formalities
and carefully maintains all indicia of separateness, “yet provided active,
daily supervision and control over hazardous waste disposal activities of
the subsidiary,” the parent would under those narrow circumstances have
no basis to escape CERCLA liability.403
Bestfoods has not been applied successfully to any GOCO case, and there is
good reason not to do so. Bestfoods stands for the proposition that “eccentric”
parental control of the subsidiary’s facility is necessary for a corporate parent
to lose the deeply engrained limited liability protections afforded under state
law and be liable under CERCLA. Bestfoods does not stand for the tangential
and opposite position—now aggressively advanced by the government in
GOCO and non-GOCO cases alike—that the U.S. government enjoys the
same limited liability protections with respect to its GOCO facilities as a
396. United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); Exxon Mobil Corp., 108 F. Supp. 3d
at 521 (“The government argues that FMC’s continuing relevance is dubious.”).
397. Bestfoods, 524 U.S. at 56–57.
398. Id. at 57–58 (noting that the EPA estimated costs “into the tens of millions of dollars”
and the United States needed as many contributors as possible to fund the cleanup).
399. Id. at 55, 61.
400. Id. at 63.
401. Id. at 62 (stating that nothing in CERCLA rejects the “bedrock principle” that a parent is
not normally liable for a subsidiary’s polluting facility).
402. Id. at 70, 72 (emphasis added).
403. Id. at 66 n.12.
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corporate parent does with respect to its subsidiaries’ facilities. The flaw in
this argument is fundamental: the U.S. government is not a corporation. The
government and its contractor do not have a corporate parent-subsidiary relationship, and there is no need to pierce a “corporate veil” of the United
States to impose CERCLA liability on the United States. It is illogical to impute onto GOCO contractors the high legal standard and heavy evidentiary
burden associated with corporate veil-piercing to ensure the United States
pays its fair share to remediate the environmental costs of war.
The United States has nonetheless advanced Bestfoods—with some success—
in certain non-GOCO cases.404 Bestfoods started out illustrating nothing
more than how the United States could, in an offensive CERCLA cost recovery action, pierce a Michigan corporate veil statute to reach a betterfunded corporate parent to impose CERCLA liability.405 The U.S. government has since bootstrapped Bestfoods into a CERCLA quasi-defense that
calls for a heavy contractor evidentiary burden, i.e., having to show the government’s “eccentric” corporate parent-like control of GOCO and nonGOCO facilities.406 Specifically, the U.S. government and various courts
contend today that defense contractors must show that the United States
managed, directed, and conducted operations at GOCO facilities specific
to pollution—often decades before concerns regarding waste disposal were
even known or considered worthy of serious oversight.407
Bestfoods never addressed whether the United States is entitled to a form of
CERCLA immunity similar to that provided corporations under state law.
The only GOCO case that considered the necessary degree of government
control over a facility to impose CERCLA “operator” liability is FMC
Corp. v. United States,408 a case that the United States now contends is no longer relevant.409 The demise of FMC’s GOCO-specific “substantial control”
standard is premature. If courts are going to adopt the Bestfoods “corporate
parent” standard for the government—in all defense manufacturing contexts
and regardless of the “GOCO model”—rather than FMC’s GOCO-specific
“substantial control” standard, courts should at least recognize the vast
404. See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521 (S.D. Tex. 2015). In
2009, Steadfast Insurance applied the Bestfoods standard favored by the government and reached a
conclusion cited by the United States ever since. Steadfast Ins. Co. v. United States. No. CV-064686, 2009 WL 3785565, at *6 (C.D. Cal. Nov. 10, 2009). Although the United States regularly
cites Steadfast Insurance for its zero percent government CERCLA “operator” liability, it does
not mention that the United States ultimately assumed thirty-three percent of future costs at
that privately owned facility after it was found liable as both a CERCLA “owner” and “arranger”
in the first AISLIC case. Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734,
2010 WL 2635768, at *26–30 (C.D. Cal. June 30, 2010); Consent Decree, supra note 351, at 10.
405. Bestfoods, 524 U.S. at 55–60.
406. Exxon Mobil Corp., 108 F. Supp. 3d at 521–22.
407. See id. at 521 (citing Bestfoods standard favoring direct control of a facility’s pollution operation and observing that “[m]any lower courts have recognized that FMC’s test is not helpful
after Bestfoods”).
408. FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 843 (3d Cir. 1994).
409. See United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); Exxon Mobil Corp., 108
F. Supp. 3d at 521.
Legacy Costs of War and the “GOCO Model”
323
factual and historical distinctions that led to the two standards. To put contractors recruited specifically for the defense program at crucial moments of
national peril into the exclusive position of “operator” liability unless the
contractor can “pierce the veil” and show the government eccentrically managed the facility and its wastes, especially at a point in history when that
would have been unthinkable, is an outright repudiation of the mutual promises that formed the very basis of the GOCO model.
2. U.S. Regulatory Power of Markets Does Not Make the
United States a CERCLA Operator
In East Bay Municipal Utility District v. United States, a California utility
district acquired an abandoned zinc mine while developing its reservoir system.410 The United States regularly cites this case in the GOCO context.411
As the new “owner,” the utility district found itself saddled with environmental liability from legacy contamination at the mine.412 The utility district
argued that the United States is also liable for this contamination because the
United States indirectly controlled the mine during wartime operations
through its activities as a market consumer and regulator.413 East Bay Municipal is not a GOCO case; the United States never owned the zinc mine.414 In
addition, no contractual privity existed between the United States and the
utility district or the predecessor owners of the mine,415 so no government
contracts influenced the analysis. This case evaluated whether the United
States could be held liable as a CERCLA “operator” based solely upon the
extent of the U.S. government’s indirect control of the mine during wartime
operations through market and regulatory measures.416
As a market participant, the United States contracted with the privately
owned mine to buy zinc at premium prices to supply its defense contractors
during World War II,417 provided advance financing to open the mine,418
and controlled prices in the zinc market.419 As a market regulator, the
United States incentivized workers to continue working in the zinc mining
industry,420 worked to close competing gold mines to keep zinc mine
410. E. Bay Mun. Util. Dist. v. United States, 142 F.3d 479, 480 (D.C. Cir. 1998).
411. See, e.g., Exxon Mobil Corp., 108 F. Supp. 3d at 523–24, 526; United States v. Shell Oil
Co., 294 F.3d 1045, 1053–54 (9th Cir. 2002).
412. E. Bay Mun., 142 F.3d at 480.
413. Id. at 480–81.
414. Id. at 481 (stating that the U.S. government’s interventions at the site took two fundamental forms: control of zinc prices and control of the labor market).
415. See id. at 480–81.
416. See id. at 487 (holding that the U.S. government’s actions were “not enough to make it
an operator under CERCLA”).
417. Id. at 486.
418. Id. at 481, 485.
419. Id. at 485 (stating that market control of zinc prices to make the war cheaper “do not
bring the government as buyer one whit closer to managerial control”).
420. Id.
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workers in place, and had the contingent power to seize the mine if it refused
to supply the government.421
Of note, East Bay Municipal pre-dates Bestfoods,422 but the East Bay Municipal court nonetheless applied a comparable standard, described by the court
as “running the facility, typically on a day-to-day, managerial basis.”423 The
East Bay Municipal court found no government managerial control of the zinc
mine,424 and thus no basis to hold the United States liable as a CERCLA operator.425 The East Bay Municipal court concluded that the U.S. government’s World War II-era regulatory controls of the zinc and labor markets
did not rise to the level of “actual control” or “authority to control” necessary to impose CERCLA operator liability.426 The East Bay Municipal court
also reasoned that the War Production Board’s power to seize the mine did
not impose the level of duress necessary to impose CERCLA operator liability.427 Simply put, regulatory authority, without more, is insufficient to impose CERCLA liability on the U.S. government. That proposition is not
controversial, but the basic facts remain distinguishable from the typical
GOCO facility.
3. “Buyer-Seller” Cases
The U.S. government regularly argues that two “Agent Orange” cases absolve the United States of CERCLA liability at GOCO facilities. These two
cases—Maxus Energy Corp. v. United States428 and United States v. Vertac
Chemical Corp.429—are factually similar. Both cases involve privately owned
facilities that produced the chemical ingredients for Agent Orange, a powerful Vietnam War-era defoliant.430 These chemical ingredients had both military and commercial applications, although the manufacturers marketed the
commercial version in a diluted form.431 The contractors at the sites in question produced and delivered undiluted Agent Orange to the U.S. military
during the 1960s pursuant to high priority contracts that effectively allowed
contractors to obtain materials more quickly for production.432 The United
States did not buy or obtain title to the precursor chemicals.433 The
421. Id. at 486–87.
422. Id. at 483 & n.1.
423. Id. at 485.
424. Id.
425. Id. at 487.
426. Id. at 486–87.
427. Id. at 486.
428. Maxus Energy Corp. v. United States, 898 F. Supp. 399, 404 (N.D. Tex. 1995) (noting
that Maxus is the successor of prior owners of the Newark, New Jersey, facility, including Diamond Shamrock and Occidental).
429. United States v. Vertac Chem. Corp., 46 F.3d 803 (8th Cir. 1995)
430. Id. at 807; Maxus, 898 F. Supp. at 401–02.
431. Maxus, 898 F. Supp. at 402; Vertac Chem., 46 F.3d at 807.
432. Vertac Chem., 46 F.3d at 806–07; Maxus, 898 F. Supp. at 402, 403 (noting that the U.S.
government issued Diamond Alkali a priority rating on its contracts to expedite delivery of precursor chemicals from subcontractors necessary for Agent Orange).
433. Maxus, 898 F. Supp. at 403; Vertac Chem., 46 F.3d at 807, 811.
Legacy Costs of War and the “GOCO Model”
325
contracts did not specify any particular production process.434 The United
States did not hire, fire, discipline, or manage the contractors’ employees.435
The U.S. government had no permanent onsite inspectors.436 The U.S. government occasionally performed quality-assurance inspections focused on
conformance with product specifications and labeling, but not on waste disposal activities.437
A byproduct of Agent Orange production is dioxin.438 Federal and state
environmental regulators ordered site cleanups decades after contract performance, and the contractors in turn sued the United States for CERCLA
contribution.439 The question presented was whether the United States
qualified as a CERCLA “operator” or “arranger” under these factual circumstances,440 and, in each instance, the court concluded that the CERCLA liability standard had not been met.441
The two courts in the 1995 Agent Orange cases applied the 1994 FMC “substantial control” test to determine CERCLA operator liability because Bestfoods
had not yet been decided.442 However, even under the broader FMC standard,
the United States never exerted sufficient control to qualify as a CERCLA “operator” or “arranger” at either site.443 The evidence showed the U.S. government’s involvement to be “sporadic and minimal.”444 The contract priority
rating system did not rise to the level of “commandeering” the private manufacturing facilities.445 The contractors failed to show that the United States participated in the management and daily operations of the plant for purposes of
CERCLA “operator” liability,446 and they also failed to show that the United
States owned the raw materials or dictated the manner of disposal necessary
for CERCLA “arranger” liability.447 The relationship between the U.S. government and the Agent Orange contractors, the court reasoned, was fairly
434. Maxus, 898 F. Supp. at 402.
435. Id.; Vertac Chem., 46 F.3d at 807.
436. Vertac Chem., 46 F.3d at 809.
437. Maxus, 898 F. Supp. at 402–03; Vertac Chem., 46 F.3d at 807.
438. See Maxus, 898 F. Supp. at 405.
439. Id. at 404 (noting that Maxus sought recovery of approximately $31.5 million in past
cleanup costs and unspecified future costs).
440. Id.
441. Id. at 407, 408; Vertac Chem., 46 F.3d at 809, 811.
442. Maxus, 898 F. Supp. at 408; Vertac Chem., 46 F.3d at 808–09.
443. Maxus, 898 F. Supp. at 408; Vertac Chem., 46 F.3d at 808–09 (“[W]e hold that it cannot
genuinely be disputed that the United States was never actively involved on a regular basis in,
and thus never exerted substantial control over, operations at the Jacksonville facility while Hercules was producing Agent Orange.”).
444. Vertac Chem., 46 F.3d at 811.
445. Maxus, 898 F. Supp. at 405 (stating that Maxus alleges the United States “effectively
commandeered the Newark Plant for use in the national defense effort”).
446. Id. (holding the United States not liable as a CERCLA operator because it did not participate in facility’s management or daily operations).
447. Maxus, 898 F. Supp. at 405, 407; United States v. Iron Mountain Mines, Inc., 881
F. Supp. 1432, 1451 (E.D. Cal. 1995) (“No court has imposed arranger liability on a party
who never owned or possessed, and never had any authority to control or duty to dispose of,
the hazardous materials at issue.”); Vertac Chem., 46 F.3d at 811.
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described as being that of an ordinary “buyer-seller.”448 Once again, as in East
Bay Municipal, the U.S. government’s market and regulatory powers alone did
not create CERCLA liability.449
The U.S. government now argues in the GOCO context that, as in the
Agent Orange cases, the United States was merely in a “buyer-seller” relationship with its GOCO contractors around the country and is therefore exempt from CERCLA liability at those GOCO sites.450 There are multiple
problems with that argument, but chief among them is that none of the
Agent Orange cases is a GOCO case. In fact, when the United States proposed constructing a dedicated GOCO plant for Agent Orange production,
then-existing producers roundly objected and stated their privately owned
chemical facilities could do the job.451 Accordingly, the United States
“held no financial ownership interest in the land, buildings, tools, machinery
or other equipment used by [the Agent Orange manufacturers].”452
4. Privately Owned Shipyard Cases Are Divided
Shipyards present a common non-GOCO factual scenario where private
industry supports wartime government contract work that is later linked to
legacy facility contamination. Contamination of the shipyard sediments typically results from painting or the removal of paints from ships.453 The cases
are divided in this situation.
State of Washington454 concerned a 100 percent privately owned—and now
closed—shipyard that did both commercial and military work.455 The Navy
used the shipyard for repair services and small boat construction operations
during wartime.456 The State of Washington and a former shipyard owner
sued the United States for contribution as a CERCLA “operator,” citing
the Navy’s past onsite supervision of shipyard operations, financing, use of
government-owned equipment, and general awareness of shipyard wastes.457
448. Maxus, 898 F. Supp. at 406–08 (finding that the United States-contractor relationship “is
one of buyer and seller,” the United States merely facilitated the acquisition of critical ingredients,
and never owned the chemicals and thus the byproducts); Vertac Chem., 46 F.3d at 810–11.
449. Vertac Chem., 46 F.3d at 810.
450. See generally Theurer, supra note 60, at 511 (“The ordinary contractual relationship between buyer and seller will not result in government liability.”); Patrick E. Tolan Jr., Environmental Liability Under Public Law 85-804: Keeping the Ordinary Out of Extraordinary Contractual
Relief, 32 PUB. CONT. L.J. 215, 282–83 (2003) (explaining how a buyer-seller relationship between the government and contractor places CERCLA liability on the contractor).
451. Maxus, 898 F. Supp. at 407–08 n.6 (noting that Diamond joined forces with its fellow
herbicide manufacturers in lobbying the United States to decide against producing Agent
Orange in its own phenoxy herbicide facility).
452. Maxus, 898 F. Supp. at 402; accord Vertac Chem., 46 F.3d at 807.
453. State of Wash. v. United States, 930 F. Supp. 474, 474, 482–83 (W.D. Wash. 1996).
454. State of Wash., 930 F. Supp. 474.
455. Id. at 477, 482 (explaining that shipyard work was a combination of commercial and
Navy work).
456. Id. at 484.
457. Id. at 483–84.
Legacy Costs of War and the “GOCO Model”
327
Although only one cost-plus-fixed-fee contract could be located,458 the
Navy admitted that it had utilized the shipyard’s services and acted as an ultimate consumer of ship repair services for Navy minesweepers and harbor
tugs during World War II.459 The United States did not change any of
the shipyard’s procedures and conducted none of the work.460 The shipyard
generated and handled its waste in the same manner before and during the
war.461 To the extent U.S. government inspectors worked at the shipyard
on an intermittent basis, they focused exclusively on efficiency and cost control.462 In short, the U.S. government controlled none of the activities leading to pollution.463 The U.S. government limited its role to that of a standard commercial consumer of shipyard services.464
State of Washington pre-dates Bestfoods, but it remains useful to the United
States today because it did not follow FMC and ultimately found no government operator liability.465 The State of Washington court openly noted the
competing “actual control” and “authority to control” CERCLA “operator”
tests that had been used by other courts, but observed that the tests all seem
to boil down to the following common sense standard: “Active involvement
in the activity that produces the contamination is what is required for ‘operator’ liability.”466 The State of Washington court held that the United States
did not become actively involved in the day-to-day shipyard activities that
produced the contamination.467 As a result, the United States bore no
CERCLA operator liability at the shipyard.468
State of Washington demonstrates one possible outcome for a closed shipyard with no current strategic value to the U.S. government. Active shipyards
of more immediate strategic importance are treated differently. In 2015, the
Navy accepted approximately thirty-three percent liability for the past and
future cleanup of two active and strategically important private San Diego
shipyards that performed both military and commercial work.469 Notably,
458. Id. at 484.
459. Id.
460. Id. at 485.
461. Id.
462. Id.
463. Id.
464. See id. (comparing the United States to any other customer at the shipyard).
465. Id.
466. Id. at 483.
467. Id. at 485.
468. Id. (“Viewing the totality of the evidence depicting the circumstances as a whole at the
Shipyard during the war years, the United States cannot be considered to have been actively involved in the day-to-day activity that produced the contamination.”).
469. Order at 32, City of San Diego v. Nat’l Steel & Shipbuilding Co., No. 09-cv-02275WQH-JLB (S.D. Cal. July 10, 2014) (stating that the Navy agreed to pay a “minimum” of
$21,189,454 in an anticipated $65,500,000 cleanup (32.3%), and between twenty-eight and
thirty-three percent of any future costs above and beyond that budgeted amount).
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these two San Diego shipyards are the only active shipyards on the West
Coast available to work on large Navy ships.470
The U.S. government’s dramatically different CERCLA liability and allocation outcomes in factually analogous shipyards are reminders of the stark
difference in closed versus active facilities and their relative importance to
ongoing military programs. If the U.S. government still needs the contaminated facility to manufacture a product or deliver services, it is much more
likely to accept CERCLA liability and a substantial allocation of environmental remediation costs.471
5. “Failure in the Evidence” CERCLA Liability Cases
The U.S. government has advanced United States v. Taylor472 and MiamiDade County v. United States473 in the CERCLA liability context in cases involving military procurement and defense manufacturing facilities, but they are
best described as “failure in the evidence”-type cases that prevented a finding
of CERCLA owner or operator liability for the United States.474 In Taylor, the
United States (through the EPA) and the State of Michigan sought recovery
from multiple potentially responsible parties (PRPs) at a contaminated
1950s-era Michigan industrial facility that was 100 percent privately owned
and had a thirty-five-year history of various commercial uses.475 The western
side of the site manufactured 105-mm artillery shells for the Army over a fiveyear period.476 No other government connection existed.
The former manufacturer went bankrupt in 1975 and abandoned the
western side of the site—where the government contract work had taken
place—in horrible condition.477 The eastern side continued commercial operations for another ten years before it too was abandoned.478 The PRPs
being sued by U.S. regulators counter-claimed against the Army, alleging
470. See U.S. DEP’T OF TRANSP., MARITIME TRADE & TRANSPORTATION 76–77 (2007) (stating
that National Steel and Shipbuilding Company (NASSCO) and BAE Systems shipyards are the
only major San Diego shipyards available for Navy use); see also Ronald D. White, Full Steam
Ahead for NASSCO Shipyard in San Diego, L.A. TIMES ( July 3, 2011), http://articles.latimes.
com/2011/jul/03/business/la-fi-made-in-california-shipyard-20110703 [https://perma.cc/
G3QS-LXVJ] (describing NASSCO as “the West Coast’s last major shipyard” and one of
only six active shipyards nationally).
471. The thirty-three percent CERCLA allocation at two active San Diego shipyards of
NASSCO and BAE in City of San Diego v. National Steel & Shipbuilding Co., No. 09-CV-2275,
2014 WL 3489282 (S.D. Cal. July 10, 2014), compares to the ninety percent U.S. allocation assumed at the strategically important AFP 42 in Tucson where aircraft missile manufacturing occurs to this day.
472. United States v. Taylor, No. 1-90-CV-851, 1993 WL 7600996, at *1 (W.D. Mich.
Dec. 9, 1993).
473. Miami-Dade Cty. v. United States, 345 F. Supp. 2d 1319 (S.D. Fla. 2004).
474. See generally Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521–533 (S.D.
Tex. 2015); Miami-Dade Cty., 345 F. Supp. 2d at 1340.
475. See Taylor, 1993 WL 7600996, at *1, *5.
476. Id. at *1–2.
477. Id. at *2.
478. Id.
Legacy Costs of War and the “GOCO Model”
329
it was liable as a CERCLA “operator” and “owner” of the western side of the
site where military projectiles had been made.479
Taylor pre-dates both Bestfoods and FMC. The Taylor court noted multiple
standards for CERCLA operator liability in the case law480 and ultimately
chose to apply a “prevention test” similar in substance to the “authority to
control” test in order to assess the Army’s operator liability.481 The Taylor
court found the Army lacked the authority under the government contracts
to control operations at the facility or its waste-handling practices.482 With
respect to owner liability, while the Army once owned some of the equipment used to manufacture the artillery rounds,483 the court did not find sufficient evidence of government ownership of any pollution-causing equipment necessary to impose CERCLA “owner” liability.484 The evidence in
Taylor simply failed.
In 2001, Miami-Dade County sued the United States for CERCLA contribution in the cleanup of TCE at the Miami International Airport.485 The
county owned the airport and acted as the landlord for over 100 commercial
tenants that used TCE for aviation-related work.486 The United States
owned the airport for six years from 1942 to 1948, and the Air Force leased
portions of the airport as a military reserve base from 1948 to 1961.487 The
county’s theory of liability focused on one defense contractor (Aerodex) that
was a county tenant and once overhauled and repaired Air Force engines.488
Miami-Dade County repeatedly failed to carry its burden of proof on
basic evidentiary matters.489 Only four “partial” U.S.-Aerodex contracts
could be found because Aerodex was bankrupt and most records had been
lost.490 The county could not show any TCE usage during the period of
U.S. airport ownership or lease.491 No proof existed that the United States
ever used TCE at the site,492 and there was no evidence the Air Force reimbursed Aerodex for TCE use on federal work.493 No evidence was offered
479. Id. at *17.
480. Id. at *7–8.
481. Id. at *18 (defining the “prevention test” as “whether the Army had either the authority
and power or the control of operations or actual involvement such that it had the ability to prevent the releases or threatened releases of hazardous substances at the site”).
482. Id. at *18.
483. See id. at *18–19.
484. Id. at *19–20 (glossing over the contracts’ Title-Vesting Clause and possible government
ownership of the chemical by-products, holding “there is insufficient evidence to show that the
government owned or should have had responsibility for the hazardous materials left on the
property”).
485. Miami-Dade Cty. v. United States, 345 F. Supp. 2d 1319, 1324 (S.D. Fla. 2004).
486. Id. at 1327–28.
487. Id. at 1324, 1327.
488. Id. at 1328.
489. Id. at 1351–52.
490. Id. at 1328, 1330.
491. Id. at 1337–38.
492. Id. at 1337.
493. Id. at 1350.
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that TCE from former United States-owned parcels was the source of contamination,494 and any U.S. contamination would have contributed little to
the county’s cleanup.495
The Miami-Dade County court applied Bestfoods to conclude that the
United States is not liable as a CERCLA “operator.”496 The United States
admitted liability as a CERCLA “owner”497 based on its temporary airport
ownership, but the evidence proved so thin that the court could not even sustain an equitable allocation against the U.S. government on that basis.498 In
short, the county’s case was so flawed that it simply could not obtain an equitable allocation from the U.S. government, even with the U.S. government’s admitted “owner” liability.499 The U.S. government’s reliance on
these “failure in the evidence” cases is still at odds with the basic operational
history at GOCO facilities.
6. U.S. Funding to Temporarily Convert an Underutilized Private
Automobile Factory for Military Weaponry Does Not Make the
United States a CERCLA “Operator”
Rospatch Jesso Corp. v. Chrysler Corp., another pre-Bestfoods CERCLA liability decision, stems from a privately owned Michigan automobile plant converted temporarily during the Korean War to supply military aircraft engines
with the help of federal loans.500 The current plant owner (a furniture manufacturer) incurred CERCLA cleanup costs and sued the past owner (an automobile manufacturer), which in turn sued the Air Force for contribution.501 The Rospatch court addressed whether the United States qualified
as a CERCLA “owner or operator” of the Michigan plant and concluded
the CERCLA operator standard had not been met.502
Rospatch is not a GOCO case, and no privity of contract ever existed between the current owner and the United States.503 A heavily indebted automobile manufacturer from the 1950s accepted substantial U.S. loans to convert its underutilized plant into a facility to manufacture Air Force aircraft
and engines during the Korean War.504 The automobile manufacturer operated under both production and facilities use contracts because the United
States provided surplus equipment and machinery to produce the military
engines.505 The U.S. government also funded the contractor’s equipment
494.
495.
496.
497.
498.
499.
500.
1995).
501.
502.
503.
504.
505.
See id. at 1338.
Id.
See id. at 1346.
Id. at 1336.
Id. at 1340.
Id. at 1342.
Rospatch Jessco Corp. v. Chrysler Corp., 962 F. Supp. 998, 999–1000 (W.D. Mich.
Id. at 999.
Id.
Id. at 1000.
Id..
Id. at 1000–01.
Legacy Costs of War and the “GOCO Model”
331
purchases.506 The equipment and machinery remained government-owned
until their return upon the conclusion of contract performance and the
plant’s sale in 1954.507 During the contract performance period, the U.S.
government retained one inspector at the plant.508
Against this factual background, the Rospatch court granted the United
States summary judgment on CERCLA “operator” liability but not on
CERCLA “owner” liability.509 The Rospatch court acknowledged this case
presented a close call: the degree of U.S. involvement fell somewhere between FMC (where the United States is found to be a CERCLA “operator”
of a privately owned rayon plant) and Vertac (where the United States is not
an operator of a privately owned Agent Orange plant).510 The Rospatch court
reasoned that the converted plant lacked evidence of FMC’s “substantial control”511 or Vertac’s “actual control.”512 Specifically, the Air Force never impinged on management,513 there was no U.S. involvement in the design or
ownership of the plant, and no Air Force involvement in plant management
or engine production.514 Because the United States supplied governmentowned equipment, however, the Rospatch court kept alive the issue of whether
the United States is a CERCLA “owner.”515 The lesson of Rospatch is that
heavy U.S. loans to convert an underutilized commercial plant for military
work does not in and of itself create CERCLA “liability.”
7. TDY Holdings, LLC v. United States
In 2007, TDY Holdings sued the United States for an equitable allocation
of CERCLA costs for the cleanup of a manufacturing site in San Diego.516
The facility was owned by the Port of San Diego—not the U.S. government
or the contractor.517 Ryan Aeronautical and its successors manufactured military aircraft and parts at the site from World War II until 1999.518 The majority of the work was in support of U.S. military contracts.519 California
regulators ordered the contractor to remediate polychlorinated biphenyls
(PCBs) (in oils and capacitors), chromium (from metal coating), and chlorinated solvents (from metal degreasing).520
506. Id. at 1001.
507. Id. at 1001–02.
508. Id. at 1005.
509. Id. at 1002, 1006, 1009.
510. Id. at 1005.
511. Id.
512. Id. at 1005–06.
513. Id. at 1005 (noting that the contractor made all decisions, and the Air Force did not
supervise or report to the U.S. government on a day-to-day basis).
514. Id. at 1006.
515. Id. at 1009.
516. TDY Findings of Fact and Conclusions of Law, supra note 134, at 1, 3, 27.
517. Id. at 1.
518. Id. at 1–2, 4 (noting that the site remained an active manufacturing site from 1939 to 1999).
519. Id. at 1–2.
520. Id. at 2.
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TDY Holdings based its entitlement for contribution from the United
States on CERCLA “owner” liability.521 The U.S. government admitted it
once owned equipment at the site, some of which was related to the legacy
contamination.522 The court concurred that both the contractor and United
States were CERCLA “owners.”523 After a twelve-day bench trial, however,
the court found the contractor 100 percent liable for past and future costs
under a CERCLA “operator” theory and because, in the court’s discretion,
it “is the most relevant factor in allocating costs.”524
The contractor followed industry standards prevalent at the time, did not
demonstrate disregard of the environment, and no singular catastrophic
event caused the contamination.525 It is undisputed that the United States
owned certain manufacturing equipment and observed the production processes.526 However, the United States-owned equipment was removed
twenty years before operations at the site ceased.527 It mattered not at all
to the court that the United States owned the chemicals used in the process
or that the government supplied equipment that released contaminants.528 It
also ultimately did not matter that “for decades there was no perceived urgency to clean up solvent as its hazardous nature was unknown.”529 What
mattered most to the TDY Holdings court was the contractor’s “maintenance” obligations, its failure to maintain the facility and equipment, and
its “careless storage practices.”530
The contractor did not seek a determination of U.S. liability as a CERCLA
“operator,”531 but the court nonetheless applied Bestfoods to find no such liability for the U.S. government at the TDY Holdings site.532 The United
States inspected for quality but did not supervise plant management or have
responsibility for plant maintenance or waste management.533 The U.S.
government did not order, coerce, or force the site to operate as a military
defense plant.534 The court never discussed any risk allocation features of
any contracts.
521. Id. at 2–3.
522. TDY Holdings, LLC v. United States, 122 F. Supp. 3d 998, 1004, 1014 (S.D. Cal. 2015)
(e.g., electrical transformers, hydraulic presses, and processing tanks).
523. Id. at 1013.
524. Id. at 1003, 1013, 1022
525. Id. at 1004.
526. Id.
527. Id. at 1014 (noting that CERCLA owner liability for the United States at the TDY
Holdings site is limited to the period between 1939 and 1979).
528. Id. (“[T]he critical issue for an equitable allocation under CERCLA is control over the
disposal of the contaminants at the [s]ite, not which party held title to the contaminants.”).
529. Id. at 1019.
530. Id. at 1004, 1009–10, 1012, 1015, 1017–20 (citing TDY Holdings’ maintenance shortcomings over ten times in the opinion).
531. Id. at 1015.
532. Id. at 1017.
533. Id. at 1015.
534. Id. at 1016.
Legacy Costs of War and the “GOCO Model”
333
The TDY Holdings court treated the relationship between the contractor
and the government for equitable allocation purposes as a “mutually beneficial” standard commercial relationship unchanged by the obvious defense
purpose or military products.535 The case has been appealed and is set for
a 2017 oral argument.536 Significantly, between ninety and one hundred percent of all past cleanup costs has been allocated to the government through
overhead reimbursement,537 and nothing in the decision would alter that
contract-based recovery pathway.
8. Summary of the Non-GOCO CERCLA Cases Favored by the
United States
The non-GOCO cases most favored by the United States in the GOCO
context typically focus on “operator” liability issues and have certain common facts that limit their influence and applicability. The cases generally
stand for the unobjectionable proposition that CERCLA operator liability
does not make sense if the level of U.S. involvement is limited to a role of
market regulator or an ultimate product consumer similar to that of any commercial purchaser. That rationale makes sense in those circumstances because purchasers in standard buyer-seller transactions are generally not liable
as CERCLA “operators” for legacy contamination at aging manufacturing
plants. GOCO cases, by definition, are built on a different model and have
far more substantial levels of government involvement. None of the cases relied upon by the United States in GOCO allocation settlements or lawsuits
digs deep into the GOCO model or the risk allocation set forth in facilities
use or procurement contracts, as discussed below.
C. Pathway No. 2: Direct Contractor Reimbursement Under Previously
Performed Government Contracts
Two established pathways exist today for contract-based reimbursement
of later-arising CERCLA liabilities: (1) post-World War II termination
agreements that incorporate the terms of the Contract Settlement Act of
1944, and (2) the Taxes Clause, provided that government contract clause
includes key terminology. These two contractual pathways both involve contracts performed decades ago and fall under the exclusive jurisdiction of the
U.S. Court of Federal Claims by virtue of the Tucker Act.538 There is no
535. Id. at 1022.
536. TDY Holdings, LLC v. United States, No. 15-CV-56483 (9th Cir. Sept. 28, 2015) (appeal docketed).
537. TDY Holdings, 122 F. Supp. 3d at 1020.
538. The U.S. Court of Federal Claims has exclusive jurisdiction for contract claims above
$10,000 involving the United States pursuant to the Tucker Act, which dates back to 1887. Compare 28 U.S.C. § 1491 with 28 U.S.C. § 1346(a) (2012), which gives the district courts and U.S.
Court of Federal Claims concurrent jurisdiction on claims at or below $10,000.
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Contract Dispute Act statute of limitations barrier because of the age of the
relevant contracts pre-date 1995.539
The first pathway of contract-based recovery of CERCLA liabilities was
forged through two seminal 2004 U.S. Court of Federal Claims and Federal
Circuit cases, DuPont540 and Ford.541 The second pathway under the Taxes
Clause followed years later in the U.S. Court of Federal Claims and the Federal Circuit and involved the Shell542 and ExxonMobil543 “avgas” cases. These
parallel U.S. Court of Federal Claims and Federal Circuit pathways and relate specifically to a contractor’s affirmative recovery rights against the U.S.
government, and for that reason are distinguishable from the contract-based
defenses available to contractors in fending off recovery by the United States,
such as the “Liability for Facilities” Clause upheld by a federal court in 2012
in United States v. ConocoPhillips.544
1. Contract Dispute Act Reimbursement Cases: Recovery of Later-Arising
CERCLA Liabilities Under the Contract Settlement Act of 1944
Both DuPont and Ford involve a similar fact pattern. Following an allocation of CERCLA environmental liabilities under federal or state law, the
contractor, using long-expired contracts, successfully sued the United States
for 100 percent recovery of those CERCLA costs under the Contract Dispute Act. Of note, this pathway provides direct reimbursement and does not
539. The Contract Disputes Act’s six-year statute of limitations does not apply retroactively
to claims based on contracts that pre-date 1995. As the U.S. Court of Federal Claims most recently explained in Salt River Pima-Maricopa Indian Community v. United States, 86 Fed. Cl. 607,
611 (2009) (internal citations omitted):
The Federal Acquisition Streamlining Act of 1994 (FASA) amended the CDA to require
that any claim brought under the CDA be initiated with a contracting officer within six years
of the accrual of such claims. . . . Section 10001 of the FASA stated that the amendments contained in the act would be implemented in a manner prescribed in regulations promulgated
pursuant to the FASA. . . . The Office of Federal Procurement Policy (OFPP) subsequently
issued a rule in the Federal Acquisition Regulation (FAR) implementing the FASA’s amendments. . . . The relevant Federal Acquisition Regulation requires that “[c]ontractor claims
shall be submitted, in writing, to the contracting officer for a decision within 6 years after accrual of a claim, unless the contracting parties agreed to a shorter time period. This 6-year
time period does not apply to contracts awarded prior to October 1, 1995.” . . . As enacted,
the FASA also was silent as to the retroactivity of the statute of limitations and left it to the
OFPP to decide whether or not to implement retroactively. The OFPP decided not to make
the statute of limitations retroactive, and as a result, the statute of limitations does not apply to
contracts entered into before October 1, 1995.
See also Sucesion J. Serralles, Inc. v. United States, 46 Fed. Cl. 773, 783 (2000) (“The regulations
denied retroactive application of the six-year statute of limitations to contracts awarded before
October 1, 1995.”).
540. E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367 (Fed. Cir. 2004).
541. Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004).
542. Shell Oil Co. v. United States, 751 F.3d 1282, 1290 (Fed. Cir. 2014).
543. See Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 581 (2011).
544. United States v. ConocoPhillips Co., No. W-11-CV-167, 2012 WL 4645616, at *5
(W.D. Tex. Sept. 30, 2012). ConocoPhillips is important because it is the only case decided
thus far where the World War II-era government contract barred later-arising CERCLA liability against the contractor.
Legacy Costs of War and the “GOCO Model”
335
create an overhead burden associated with indirect reimbursement under the
allowability rules. These two 2004 Federal Circuit cases explain how direct
contract reimbursement of later-arising CERCLA liabilities using old contracts is feasible, although both cases called upon creative arguments to overcome difficult Anti-Deficiency Act hurdles.
In DuPont,545 DuPont initiated a Contract Dispute Act action to recover
CERCLA costs incurred decades after the performance of a single 1940
cost-plus-fixed-fee contract that was terminated in 1946.546 A contaminated
government-owned munitions plant had been acquired, built, and operated
for the exclusive benefit of the United States by DuPont in 1940 in Morgantown, West Virginia, pursuant to a government contract.547 In 1946, the
U.S. government terminated the contract and entered into a “supplemental
termination agreement” that could not be found, but which the court inferred would have contained standard language from the Contract Settlement Act of 1944.548 The Contract Settlement Act provided authority to terminate war contracts and outlined the methods to reimburse government
contractors and subcontractors under consistent standards.549
In 1984, four decades after World War II, the EPA requested that DuPont
perform a voluntary cleanup.550 The contractor entered into a consent decree
in 1990 before filing a claim under the Contract Dispute Act in 1993 for reimbursement of over $1.3 million in previously allocated CERCLA liabilities.551
After exhausting its administrative remedies under the Contract Dispute Act,
DuPont sued the United States in the U.S. Court of Federal Claims.552
The DuPont GOCO contract contained a standard “reimbursement”
clause for the costs to construct the government-owned munitions plant
that would be operated by DuPont.553 The terminated contract also contained an indemnity provision.554 Both the trial court and the Federal
545. E.I. DuPont de Nemours & Co., 365 F.3d at 1367.
546. Id. at 1369–70.
547. Id. at 1369; E.I. DuPont de Nemours & Co. v. United States, 54 Fed. Cl. 361, 363
(2002).
548. The standard language of the supplemental termination agreement provided an “Unknown Claims Clause” whereby the cost-plus-fixed fee “shall cease and be forever released except: Claims by [the contractor] against the Government which are based upon responsibility of
[the contractor] to third parties and which involve costs reimbursable under the contract, but
which are not now known to [the contractor].” DuPont, 365 F.3d at 1370 & n.3.
549. See Sen. James Murray, Contract Settlement Act of 1944, 10 LAW & CONTEMP. PROBS. 683,
686 (1944).
550. E.I. DuPont de Nemours & Co., 54 Fed. Cl. at 363–64.
551. Id. at 364.
552. E.I. DuPont de Nemours & Co., 365 F.3d at 1371.
553. The GOCO cost-plus-fixed-fee contract provided:
The Contractor shall be reimbursed in the manner hereinafter described for such of its actual expenditures in the performance of the work under this contract, heretofore or hereafter
incurred, as may be approved or ratified by the Contracting Officer and as are included in the
following items: . . . Losses, expenses, and damages, not compensated by insurance or otherwise . . . .
Id. at 1369–70 (emphasis added).
554. The Morgantown GOCO’s Indemnification Clause provided in relevant part:
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Circuit concluded that all later-arising CERCLA costs were reimbursable
under the broad contract language of the terminated cost-plus-fixed-fee contract.555 The Federal Circuit reasoned that the supplemental termination
agreement (authorized and based upon the Contract Settlement Act of
1944) kept those CERCLA claims alive decades later.556 Not even the
Anti-Deficiency Act557 could alter the outcome because the Contract Settlement Act’s open language regarding claims that are “not now known,” which
had been incorporated into the supplemental termination agreement, provided the necessary statutory authorization to recognize the ongoing federal
obligation to pay the contractor decades after contract termination.558
A few months after DuPont, the Federal Circuit in Ford again considered
whether a contractor can recover its later-arising CERCLA costs under government contracts terminated after World War II.559 In overruling an adverse lower court decision, the Federal Circuit held that long-expired
GOCO contracts provide an appropriate avenue to recover legacy environmental liabilities.560
In 1941, at the U.S. government’s direction and under the terms of a
CPFF contract, Ford constructed the “Willow Run Bomber Plant” to manufacture B-24 “Liberator” bombers.561 At the time, it was the world’s largest
bomber plant.562 The massive facility was built with government funds and
leased back to the contractor through the end of World War II.563 The plant
It is the understanding of the parties hereto, and the intention of this contract, that all
work under this Title III is to be performed at the expense of the Government and that
the Government shall hold [DuPont] harmless against any loss, expense (including expense
of litigation), or damage (including damage to third persons because of death, bodily injury
or property injury or destruction or otherwise) of any kind whatsoever arising out of or in connection with the performance of the work . . . .
Id. at 1370.
555. E.I. DuPont de Nemours & Co., 54 Fed. Cl. at 372; E.I. DuPont de Nemours & Co., 365 F.3d
at 1372–73.
556. See E.I. DuPont de Nemours & Co., 365 F.3d at 1374 (noting that the government obligations to make DuPont whole “remains in effect”).
557. The Anti-Deficiency Act dates back to 1870. As currently codified at 31 U.S.C. § 1341,
the Anti-Deficiency Act prohibits members of executive branch from making any contractual
commitments binding future congressional appropriations without statutory authority to do
so. A contractual indemnity with the federal government that lacks statutory authorization is
void. See Nat’l Gypsum Co., ASBCA. Nos. 53259, 53568, 03-1 BCA ¶ 32,054, at 158,452
(2002) (holding that because indemnification clause in World War II era contract was “unlimited in amount, and not otherwise authorized by law, it violated the Anti-Deficiency Act and the
Executive Order under which the contract was entered into”).
558. See E.I. DuPont de Nemours & Co., 365 F.3d at 1379–80.
559. Ford Motor Co. v. United States, 378 F.3d 1314, 1314 (Fed. Cir. 2004).
560. Ford Motor Co. v. United States, 56 Fed. Cl. 85, 98 (2003), overruled by 378 F.3d at
1320.
561. Ford Motor Co., 378 F.3d at 1315.
562. See PATTILLO, supra note 11, at 139; see also Scott Held, Volunteers Vow They Will Replace
Vintage Collection, N EWS -H ERALD (Oct. 13, 2004), http://www.thenewsherald.com/news/
volunteers-vow-they-will-replace-vintage-collection/article_0b2a92a5-7fa0-5557-bbe7bd607e94caef.html [https://perma.cc/7AC7-5ZWW].
563. Ford Motor Co., 378 F.3d at 1315.
Legacy Costs of War and the “GOCO Model”
337
focused on defense-related aircraft manufacturing for only four to five
years.564 The bomber contract was terminated upon the conclusion of
World War II.565 Like so many other GOCO plants of the era, the Willow
Run plant used chemicals, metal coating treatments, and sludge ponds for
the byproducts of defense manufacturing.566
Nearly five decades later, in 1988, the State of Michigan and the EPA pursued CERCLA cost recovery against Ford and at least six other Willow Run
Plant GOCO contractors for environmental liabilities arising from the performance of World War II government contracts.567 In a 1997 arbitration, Ford
was allocated a 9.763% CERCLA liability share for the cleanup of Willow
Run Plant.568 After quantifying its CERCLA liability, Ford sought reimbursement of its costs under the 1946 “termination contract” and the Contract Settlement Act of 1944.569 The contractor exhausted its administrative remedies
and then filed a complaint in the U.S. Court of Federal Claims.570
The DuPont and Ford cases are factually similar in that the original CPFF
contracts that built the GOCO facilities were terminated by the government
at the conclusion of the war and supplemented by a 1946 termination agreement governed by the Contract Settlement Act of 1944. Both termination
agreements incorporated critical language from the Contract Settlement Act
that kept the door open for reimbursement of costs that were “not now
known” at the time of termination.571 Citing its seminal DuPont decision
from the same year, the en banc Federal Circuit held that, as long as a termination contract included the “not now known” language drawn from the Contract Settlement Act, “there is no temporal limit” on when a contractor’s liabilities must accrue for reimbursement purposes, provided the origin of the laterarising CERCLA costs relates to the performance of the GOCO contract.572
The Federal Circuit held the government contracts obligated the U.S.
government to reimburse its former contractor fully for any later-arising
CERCLA environmental costs, even if those liabilities accrued fifty-plus
years after the government contract had been terminated: “We conclude
that Ford’s claim for reimbursement is not barred merely because the originating events are long past, for the liability for cleanup did not arise until
564. Id.
565. Id.
566. Id.
567. Id.
568. Id.
569. Id. at 1316.
570. Id.
571. The Ford-Air Force termination agreement provided:
Claims of the Contractor against the Government which are based upon responsibility of
the Contractor to Third parties . . . and which involve costs reimbursable under the Contract . . . but which are not now known to the Officers, Directors, or other personnel of
the Contractor whose duties include the acquisition of such knowledge.
Id. at 1318.
572. Id. at 1319–20.
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after the enactment of CERCLA and other environmental laws, and the
claim was timely made after it arose.”573
Contract Dispute Act cases such as DuPont and Ford make clear that the
munitions and aircraft manufacturing contracts entered (and terminated) in
support of World War II authorize the “direct” reimbursement of all “laterarising” CERCLA costs, even though incurred by the contractor decades
later.
2. Contract Dispute Act Reimbursement Cases: Contract Recovery of
Later-Arising CERCLA Liabilities Under the “Taxes Clause”
Not all government contracts have the dual benefit of relating to World
War II-era production and having been terminated under the Contract Settlement Act of 1944, i.e., features that side-step the Anti-Deficiency Act and
trigger reimbursement of claims “not yet known.” If the Contract Settlement
Act of 1944 offered the only opportunity for direct contract recovery for
CERCLA liabilities, a limited number of contractors would benefit. A second contract-based theory gained acceptance in 2014 after a procedurally bizarre multi-year battle with the United States that involved multiple appeals
and remands between the U.S. Court of Federal Claims and the Federal
Circuit.574
In two factually similar “avgas” refinery cases, the U.S. Court of Federal
Claims twice addressed the novel issue of government contract liability
under the “Taxes Clause” for a contractor’s later-arising CERCLA liability.575 Neither case involved Contract Settlement Act issues, and thus an alternative pathway for recovery needed to be developed. In both cases, the
court held that government-imposed CERCLA cleanup costs, even if incurred decades after the applicable production contracts expired, qualify as
a recoverable “charge” or “tax,” as those terms are traditionally defined in
standard government contracts.576
The first case to address the Taxes Clause theory of recovery was Shell.577
In 2006, Shell and other oil companies filed a Contract Dispute Act lawsuit
against the United States following an extended CERCLA litigation.578
Whereas the Ninth Circuit had already adjudged the United States to be
100 percent liable for direct payments under CERCLA for benzol wastes,
573. Id.
574. Shell Oil Co. v. United States, 751 F.3d 1282 (Fed. Cir. 2014).
575. See Shell Oil Co. v. United States, 93 Fed. Cl. 439 (2010), vacated, 672 F.3d 1283 (Fed.
Cir. 2012); Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 580 (2011).
576. See Shell Oil Co., 93 Fed. Cl. at 444; Exxon Mobil Corp., 101 Fed. Cl. at 580.
577. There is a complicated case history for the Shell Taxes Clause case. See Shell Oil Co. v.
United States, 80 Fed. Cl. 411, 413 (2008); Shell Oil Co. v. United States, 86 Fed. Cl. 470, 471
(2009); Shell Oil Co., 93 Fed. Cl. 439, vacated, 672 F.3d 1283.
578. Compare Shell Oil Co. v. United States, 672 F.3d 1283, 1285 (Fed. Cir. 2012) with
United States v. Shell Oil Co., 294 F.3d 1045, 1045 (9th Cir. 2002) (deciding CERCLA allocation for the McColl, California site).
Legacy Costs of War and the “GOCO Model”
339
the Shell contract case sought 100 percent contract reimbursement for nonbenzol CERCLA liabilities.579
The two contractors in Shell had produced aviation gas from 1942 to 1943
pursuant to ten contracts and sought reimbursement for $18 million in
CERCLA remediation costs that had been imposed by California and
the EPA for the cleanup of its waste streams.580 The court held that the
CERCLA cleanup costs are reimbursable post-production “charges” under
the “Taxes Clause.”581 The Taxes Clause states: “ [A]ny new or additional
taxes, fees, or charges, other than income, excess profits, or corporate franchise
taxes, which [contractor] may be required by any municipal, state or federal law
in the United States or any foreign country to collect or pay by reason of the
production, manufacture, sale or delivery of the [avgas].”582
In Exxon Mobil, the second Taxes Clause case, Judge Smith noted that the
contractor’s predecessors had produced a form of high-octane aviation gas
necessary to national defense pursuant to three 1942–43 government contracts.583 In 1987 and 1995, state regulators ordered the cleanup of the
World War II-era byproducts of this avgas production.584 The Taxes Clause
in these 1942–43 contracts was identical to that in Shell, requiring government reimbursement for “taxes” and any new or additional “charges.”585
The ExxonMobil court held the term “charges” in the Taxes Clause includes
environmental cleanup costs.586 The very purpose of the clause, the court
reasoned, is “to remove the potential risks any reasonable producer would be
reluctant to take on.”587 In so doing, the court dismissed all Anti-Deficiency
Act, untimeliness, laches, and other government defenses.588 Without expressly
calling the liability to be assumed by the government a “cost of war,” the court
stated that war-related risks should be borne by the U.S. government.589 The
trial court granted Exxon Mobil summary judgment on the issue of government contract liability for the cleanup.590
The Federal Circuit ultimately vindicated Judge Smith’s Shell and ExxonMobil decisions.591 The Federal Circuit noted upon the seventieth anniversary of World War II how “we must recall and place into its appropriate
579. Shell Oil Co. v. United States, 751 F.3d 1282, 1290 (Fed. Cir. 2014).
580. Shell Oil Co., 80 Fed. Cl. at 412–14.
581. Id. at 416–17.
582. Shell Oil Co., 751 F.3d at 1290 (emphasis added).
583. Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 578 (2011).
584. Id. at 579.
585. Id. at 578 (emphasis added).
586. Id. at 579–80.
587. Id. at 581.
588. Id. at 580.
589. Id. at 581 (“ExxonMobil entered into the Avgas Contracts with the Government to facilitate the war effort, and the Government’s need for excessive amounts of avgas prompted the
Government to insure ExxonMobil’s production costs.”).
590. Id.
591. See Shell Oil Co. v. United States, 751 F.3d 1282, 1285 (Fed. Cir. 2014). On remand, the
Court of Claims awarded the oil companies over $99 million for CERCLA costs and the U.S. government’s breach of the Taxes Clause. Shell Oil Co. v. United States, __ Fed. Cl. __ (Jan. 6, 2017).
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context the atmosphere of stark determination for victory at all costs, which
drove our war effort after the Japanese Empire attacked. . . .”592 The Federal
Circuit held the term new or additional “charge” in the Taxes Clause “must be
interpreted to require reimbursement for the Oil Companies’ CERCLA costs
arising from avgas production.”593 The Federal Circuit also rejected the government’s Anti-Deficiency Act arguments.594 The gross inequity of shifting
national defense liabilities onto a handful of surviving GOCO contractors
that answered the nation’s call was not lost on the U.S. Court of Federal
Claims and Federal Circuit in the DuPont, Ford, ExxonMobil, and Shell matters.
D. Pathway No. 3: “Allowable” Indirect Reimbursement via Overhead on
Current and Future Contracts
Today’s federal procurement contracts may indirectly fully fund cleanup
costs at contaminated GOCO and non-GOCO facilities under government
contract allowability rules and cost accounting standards. Cleanup costs are
deemed a cost of doing business that, subject to limited exceptions, contractors
may pass on to their government “customers.” It matters not whether the contractor or the government is liable under CERCLA—it is purely a function of
the cost of producing goods at a price that the government desires.
Charging cleanup costs through overhead is an important option available
to contractors, and it is typically the mechanism contractors resort to during
the years of cleanup before CERCLA allocation is negotiated or litigated.
Contract overhead reimbursement has its disadvantages, however, because
it makes the contractor’s products more expensive and therefore less competitive. Stated differently, the hidden costs of past defense products are making
today’s more expensive. At sites with high cleanup costs, over-reliance upon
overhead reimbursement can make the contractor’s business non-viable. At
sites with lower cleanup costs, overhead tends to be a more efficient pathway
than CERCLA or Contract Dispute Act litigation.
1. Legal Standard for Allowability
The FAR establishes the contractual authority by which the government
obtains the goods and services it requires, and it has the force of law.595 According to the FAR, a cost is allowable if it is “reasonable,” “allocable” to
government contracts, and not specifically unallowable.596 In the specific
592. Id. at 1284.
593. Id. at 1296 (noting the U.S. government’s “near-complete authority” over the plants and
the grand bargain of “low profits in return for the Government’s assumption of certain risks”).
594. Id. at 1299, 1301–02 (explaining that the First War Powers Act, as delegated to the avgas
oversight agency, was sufficient authorization for future charges under the Taxes Clause).
595. Statement of Interest of the United States of America, United Techs. v. Am. Homes Assurance Co., No. 292-cv-267-JBA (D. Conn. filed May 11, 2001), ECF No. 1445 [hereinafter First
Statement of Interest]. The First Statement of Interest is attached as an exhibit to the Second Statement of Interest, see infra note 618 and accompanying text. The pages are filed out of sequence, but
the relevant pages of the First Statement of Interest can be found at ECF page 11 and 16.
596. FAR 31.201-2(a).
Legacy Costs of War and the “GOCO Model”
341
context of “environmental costs,” the Defense Contract Audit Agency
(DCAA) instructs that “costs incurred to clean up environmental contamination are considered to be normal business expenses.”597 DCAA has promulgated a number of guidelines for applying the FAR where government contractors incur environmental costs as part of their business.598
DCAA cost allowability standards for environmental costs follow the general cost accounting rule of reasonableness.599 The DCAA Contract Audit
Manual (CAM) explicitly recognizes that, as a matter of policy, “[e]nvironmental costs are normal costs of doing business and are generally allowable
costs if reasonable and allocable.”600 Allowable environmental costs are
broadly defined to include “costs to prevent environmental contamination,
costs to clean up prior contamination, and costs directly associated with
the first two categories including legal costs.”601 These allowability guidelines are favorable for contractors.602 Industry standards at the relevant
time of the release of contamination provide the crucial benchmark for recovery: a “contractor should not be denied recovery of clean-up costs, if it
complied with the laws, regulations, and permits in effect at the time of the
contamination.”603
Pursuant to the DCAA guidelines, environmental cleanup costs are specifically unallowable where the “environmental clean-up costs are the result of
contractor violation of laws, regulations, orders or permits, or disregard of
warnings for potential contamination. . . .”604 There must, however, be a
finding of contractor wrongdoing. To disallow cleanup costs, DCAA instructs that the evidentiary burden is on the government to show by a “preponderance of the evidence” that the contractor “violated the law, regulation, order or permit, or the contractor disregarded warnings for potential
contamination. That is, it must be more likely that the government’s allegation of wrongdoing is correct than it is not.”605
The U.S. government has routinely considered environmental remediation costs to be allowable at GOCO facilities and contractor-owned facilities
operated in support of defense programs. In fact, the DoD has acknowledged
this very point to the GAO: there are “currently no additional limitations
on the allowability of contractor environmental cleanup costs” under the
FAR.606 Therefore, “[w]hen no contractor malfeasance exists, the [FAR]
597. DEFENSE CONTRACT AUDIT AGENCY, DCAAM 76140.1, DCAA CONTRACT AUDIT MAN§ 7-2120.3 (2015).
598. See generally id. at § 7-2120.
599. Id. at § 7-2120.5.
600. Id. § 7-2120.1.
601. Id. § 7-2120.2.
602. See id. §§ 7-2120.6, 7-2120.7 (allowing cleanup costs for a closed site to be transferred as
overhead for the contractor’s new location).
603. Id. § 7-2120.13(e) (emphasis added).
604. Id. § 7-2120.13(a).
605. Id. § 7-2120.13(d).
606. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 43.
UAL
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allowability criteria dictate that the government should pay for its fair share
of environmental cleanup costs.”607 To date, no GOCO contractor has been
denied outright the right to recover its cleanup costs for legacy contamination at a GOCO facility based upon a theory of “contractor wrongdoing.”
2. Applicable Case Law on Environmental Cost Allowability
Based upon a review of the available case law from the Armed Services
Board of Contract Appeals (ASBCA), other Boards of Contract Appeals,
and the U.S. Court of Federal Claims, to date not a single case exists
where a contractor’s costs for environmental cleanup has been held to be unallowable based upon standard industry practices. Further, no published case
law exists applying the exception for contractor unlawful actions in a fashion
to deny across-the-board a contractor’s cleanup costs based upon a retroactive application of today’s commercial standards.
There is one U.S. Court of Federal Claims case which, albeit indirectly,
considers the allowability of environmental cleanup costs and finds in
favor of the contractor. In KMS Fusion, Inc. v. United States, the government
contractor brought a breach of contract action against the U.S. Department
of Energy (DOE) in connection with a research and development project involving highly radioactive tritium for use in fusion technology.608 At the outset of trial, the DOE conceded the allowability of costs for environmental
remediation.609 The remaining issues went to trial and both the contractor
and the DOE prevailed on various claims.610
Subsequent to the judgment in the underlying lawsuit, the contractor filed
an application seeking attorney fees and expenses pursuant to the Equal Access
to Justice Act (EAJA)611 and the U.S. government’s initial disallowance of
cleanup costs.612 The contractor alleged that the DOE’s failure to settle timely
“the issue of whether plaintiff ’s claim for reimbursement of $359,610.00 incurred for site studies and environmental remediation . . . was reasonable
and allowable” was unjustified.613 The DOE argued that its litigation position
was reasonable because the “plaintiff had engaged in ‘environmental wrongdoing’ during the period at issue.”614 The court rejected the DOE’s unsupported “speculation and innuendo”: “As a starting point, [DOE] was unable
to produce evidence supporting its allegation of environmental wrongdoing.
Second, [contractor] asserts correctly that [DOE] was unable to produce any
pertinent statute or regulation supporting its contention.”615
607.
608.
609.
610.
611.
612.
613.
614.
615.
Id.
KMS Fusion, Inc. v. United States, 39 Fed. Cl. 593, 596–97 (1997).
Id. at 597, 599.
Id.
28 U.S.C. § 2412; KMS Fusion, 39 Fed. Cl. at 593.
KMS Fusion, 39 Fed. Cl. at 593.
Id. at 599.
Id.
Id. (emphasis added).
Legacy Costs of War and the “GOCO Model”
343
The court further criticized the government for “unnecessarily invoking
the specter of [CERCLA].”616 Based on these findings, the court held that
the DOE’s allegation against the contractor “was not substantially justified”
and that the contractor was thus entitled to an award of its attorney fees pursuant to the EAJA.617
Additionally, in statements of interest filed in United Technologies Corp.,
the U.S. government itself represented in federal court that environmental
cleanup costs are allowable.618 The U.S. government filed the statement of
interest to object to an insurance company’s attempt to shift the costs of environmental remediation onto a government contractor and, by extension,
the government itself.619 The contractor had been reimbursed through overhead for cleanup costs through its government contracts, and the insurance
carrier argued that any recovery under its policy to the contractor would
constitute impermissible “double recovery.”620
The U.S. government argued that federal procurement law prohibited
an insurer from offsetting its insurance obligations for cleanup, owed to a
government contractor policyholder, from amounts that the contractor received for environmental cleanup from the government through forward
pricing (i.e., overhead).621 In doing so, the U.S. government defined “costs”
to “[i]nclude both direct costs . . . and indirect costs. . . . Environmental remediation costs are indirect costs.”622 The U.S. government explained that it “has allowed [environmental remediation costs] to be incorporated into the prices it
has paid under negotiated government contracts through their inclusion in
overhead cost pools that are separately applied to thousands of underlying
contracts.”623 Thus, the DoD explicitly has taken the position that “environmental remediation costs are indirect costs” that are allowable.
VI. LOCKHEED V. UNITED STATES: A TEST CASE ON THE
INTERACTION OF “INDIRECT” OVERHEAD AND ALLOWABILITY
VERSUS “DIRECT” CERCLA REIMBURSEMENT
Lockheed Martin Corp. v. United States624 served as a particularly important
test case for defense contractors seeking to recover environmental response
costs from the government. The case was recently decided in favor of the
616. Id.
617. Id. at 600.
618. See First Statement of Interest, supra note 595; Second Statement of Interest of the
United States of America, United Techs. v. Am. Homes Assurance Co., No. 292-CV-267JBA (D. Conn. filed Aug. 23, 2001), ECF No. 1445 [hereinafter Second Statement of Interest].
The relevant pages of the Second Statement of Interest can be found at ECF page 22 and note 8.
619. First Statement of Interest, supra note 595, at 1–2, ECF p. 1–2.
620. United Techs. Corp. v. Am. Home Assurance Co., 237 F. Supp. 2d 168, 171 (D. Conn.
2001).
621. First Statement of Interest, supra note 595, at 1–2, ECF p. 1–2.
622. Second Statement of Interest, supra note 618, at 5 n.8, ECF p. 22 n.8.
623. Id. at 14, ECF p. 24.
624. Lockheed Martin Corp. v. United States, 833 F.3d 225 (D.C. Cir. 2016).
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contractor. The key issue presented in Lockheed is the potential overlap of direct
CERCLA reimbursement to a defense contractor (Pathway No. 1 above625)
with indirect reimbursement via allowability (Pathway No. 3 above626). The
United States argued that indirect allowability of environmental costs acts as
an absolute defense for the United States against CERCLA claims by its contractors, i.e., allowing such claims to proceed would result in an impermissible
“double recovery.” Alternatively, the United States argued that it should be entitled to a dollar-for-dollar credit in a CERCLA allocation action for any previously allowable costs it has paid its contractor.627
A. Background Facts of Lockheed I and II
Lockheed involves a claim for CERCLA contribution by a defense contractor against the United States with respect to three sites in southern California used to develop and manufacture rocket systems in Cold War rocket programs for approximately twenty years.628 None of the three sites at issue in
Lockheed was a traditional GOCO facility—two were privately owned and
one was city-owned.629
Lockheed’s predecessor, the Lockheed Propulsion Company,630 worked
primarily as a subcontractor to Boeing under five subcontracts to the
Short Range Attack Missile program.631 As a subcontractor, Lockheed’s predecessor did not routinely operate in direct contractual privity with the
United States. Lockheed’s predecessor researched, developed, and manufactured solid rocket propellant and large solid propellant motors exclusively in
support of Cold War defense and space program work.632 President Eisenhower declared various missile and space programs, including the programs
on which Lockheed’s predecessor worked, to be “highest priority.”633
The industrial operations utilized at the Lockheed sites involved flushing
(i.e., “hogging out”) propellant using water and solvents and the use of
“evaporation pits” and “burn pits” for wastes.634 These practices, which
were standard industry practices at the time, resulted in soil and groundwater
625. See discussion supra Part V.A.
626. See discussion supra Part V.D.
627. Opening (Proof ) Brief of the United States, Lockheed Martin Corp. v. United States,
No. 14-5302 (D.C. Cir. filed Apr. 15, 2015), ECF No. 1547460 [hereinafter United States Opening Brief].
628. Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14, 15 (D.D.C. 2009) [Lockheed I]; Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 98, 101 (D.D.C. 2014)
[Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).
629. See Lockheed I, 664 F. Supp. 2d at 15; Lockheed II, 35 F. Supp. 3d at 98, 101.
630. Lockheed I, 664 F. Supp. 2d at 15 n.1 (explaining that Lockheed Propulsion Company
was a division of Lockheed Aircraft Corporation, which became Lockheed Corporation in
1977 and ultimately Lockheed Martin Corporation in 1995).
631. Lockheed II, 35 F. Supp. 3d at 102–03.
632. Id. at 98–99 (stating that Lockheed supported four space programs––Vanguard, Explorer, Mercury, and Apollo––and President Eisenhower designated the Mercury and Apollo
programs to be the “highest national priority”).
633. Id. at 99.
634. Id. at 105.
Legacy Costs of War and the “GOCO Model”
345
contamination.635 The government controlled the specifications for the
product, but it did not provide direction to Lockheed’s predecessor.636
The U.S. government attended daily status meetings, but the meetings did
not discuss waste disposal.637 The U.S. government acquiesced in the dayto-day disposal activities, but it did not manage or control waste disposal
at the three sites.638 Both Boeing (as the general contractor) and the United
States (as the customer) supplied onsite inspectors.639
Upon discovery of contamination in the 1980s, state and federal regulators
ordered Lockheed to perform an investigation and later a cleanup.640 The
U.S. government’s involvement and presence at the three Lockheed facilities
had concluded years before the contamination first became known,641 and
therefore, the California regulators focused exclusively on Lockheed to implement the work.642 Lockheed initially rejected but then accepted responsibility
based upon a closer evaluation of the contaminants involved that tied closely
to the facilities’ past practices.643 Lockheed estimated an aggregate of over
$411 million in past and future cleanup costs at the three sites.644
Lockheed and the Defense Contract Management Agency (DCMA) negotiated an advance agreement called the Discontinued Operations Settlement Agreement (DOSA) to address the allowability of cleanup costs at numerous Lockheed-related defense facilities, including the three closed
southern California facilities.645 Procedurally, the cleanup costs were collected into accounting pools at the corporate level and then spread over a
portfolio of contracts for five years.646 Under the advance agreement, the
percentage of indirect cleanup costs passed on to U.S. government contracts
would correlate with the U.S. government’s share of Lockheed’s annual
business.647 The DOSA expressly prohibited double recovery and mandated
reimbursement to the United States if that occurred.648 Lockheed remained
obligated to credit the overhead pool for any direct payments to Lockheed of
635. Id. at 135–36 (noting that the specific groundwater contaminants at issue were not
known to be environmental dangers at the time, and pouring wastes on the bare ground was “entirely consistent with the general standards of care in existence at that time”).
636. Lockheed II, 35 F. Supp. 3d at 102.
637. Id. at 102–03.
638. Id. at 150.
639. Id. at 104 (stating that Boeing had twenty full-time and the United States had four to five
full-time inspectors at the Redlands Lockheed facility, and the United States leaned on Boeing
for inspections at Lockheed facilities, none of which involved risks of environmental pollution).
640. Id. at 106.
641. Id. at 101, 106–07.
642. Id. at 106–07.
643. Id. 106, 109 (explaining that Lockheed eventually accepted responsibility because the
Lockheed facility was the only source of ammonium perchlorate in the watershed).
644. Id. at 105 (noting that as of 2014, Lockheed estimated $287 million in past and $124
million in future cleanup costs at the three facilities).
645. Id. at 111–12.
646. United States Opening Brief, supra note 627, at 15.
647. Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 111–12 (D.D.C. 2014)
[Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).
648. Lockheed II, 35 F. Supp. at 112.
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cleanup costs.649 In short, the higher the overhead pool, the higher Lockheed’s costs for bidding purposes would be; conversely, the lower the overhead pool, the lower the cost of goods for the U.S. government.650
The DOSA essentially allowed Lockheed to recover approximately
eighty-three percent of its defense-related environmental cleanup costs at
these three non-federally owned southern California facilities.651 The remaining seventeen percent related to non-federal work and would presumably be passed on to Lockheed’s non-federal customers through overhead
on those private contracts.652 Ordinarily, having eighty-three percent of an
anticipated $411 million cleanup funded by the government would be considered a spectacular result.653 However, nearly a decade after Lockheed entered the advance agreement, the escalating costs of cleanup at the three
closed southern California facilities made the contractor’s overhead and its
cost of production higher than anticipated relative to its competitors.654
Notwithstanding its advance agreement, the contractor sued the United
States under CERCLA seeking to convert its high overhead costs (made
higher by the nearly $287 million in past cleanup costs) into direct CERCLA
payments to be assumed by the United States that would improve the contractor’s ability to win future business. Lockheed did not fare well.
B. Lockheed I (Double Recovery Defense)
Lockheed was filed in 2008 and initially assigned to Judge Robertson in the
U.S. District Court for the District of Columbia.655 The United States moved
for summary judgment on “double recovery” grounds, arguing that the DOSA
precluded Lockheed from obtaining any further recovery from the government under CERCLA.656 The government contended that CERCLA section 114(b)657 prevents Lockheed from further recovery because contract
overhead payments in accordance with the FAR are “pursuant to any other
Federal or State law.”658
Judge Robertson rejected the government’s “double recovery” defense, distinguishing “government-as-client” indirect contract costs from “government649. Id.
650. Id. at 117 (citing Judge Robertson’s analysis in Lockheed I).
651. See United States Opening Brief, supra note 627, at 9 (stating that Lockheed will recover
eighty-three percent, or $341 million of $411 million in past and future cleanup costs).
652. Lockheed II, 35 F. Supp. 3d at 97, 112 n.25 (explaining that non-federal work included
commercial, foreign, state, and educational work).
653. See United States Opening Brief, supra note 627, at 1.
654. See id. at 16 (asserting that any CERCLA recovery would be applied by Lockheed to “reduce the price of future contracts for all of Lockheed’s customers, including the United States”).
655. Docket at 48, Lockheed Martin Corp. v. United States, No. 1:08-CV-01160, 35
F. Supp. 3d 92 (D.D.C. 2014).
656. See Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14, 15, 18, 20 (D.D.C.
2009) [Lockheed I].
657. 42 U.S.C. § 9614(b) (2012) (“Any person who receives compensation for removal costs
or damages or claims pursuant to any other Federal or State law shall be precluded from receiving compensation for the same removal costs or damages or claims as provided in this chapter.”).
658. Lockheed I, 664 F. Supp. 2d at 18.
Legacy Costs of War and the “GOCO Model”
347
as-PRP” direct CERCLA liability payments.659 No windfall could exist, in the
court’s eyes, because the FAR has a Credits Clause whereby CERCLA recovery
is credited back to the United States,660 and the DOSA explicitly bars double
recovery.661 Judge Robertson grasped the anti-competitive consequences of
over-reliance on “government-as-client” indirect contract reimbursement as
the only available contractor recovery pathway. The court reasoned:
[Although Lockheed] might be able to recover all of its response costs as indirect
costs on its government contracts [. . . ,] proceeding in that way makes Lockheed
less competitive in future contests for government contracts, because its need to
recover response costs through indirect cost payments would require inflated
and possibly non-competitive bids.662
On the government’s motion for reconsideration on its “double recovery
defense” under CERCLA section 114(b), Judge Robertson elaborated that
reimbursement payments under the DOSA that are otherwise compliant
with the FAR do not make the payments “pursuant to . . . Federal law.”663
The court considered the U.S. government’s arguments to the contrary to
be “far-fetched and unpersuasive,” and any examples of unfair burdens to
the taxpayers would be considered in the equitable allocation stage.664
C. Lockheed II (CERCLA Allocation)
Judge Robertson retired in 2010 after issuing his opinion denying the
U.S. government’s “double recovery” defense in Lockheed I.665 Judge Huvelle
handled the CERCLA allocation phase of the case.666 Lockheed II is important because it is the first and only case thus far to consider the impact of
allowability payments in the context of a CERCLA allocation action involving the government.667 Lockheed II offers no shortage of cautionary lessons
for contractors, but first among them is that the contractor’s belated selection (or alteration) of a particular pathway for recovery can have significant
legal consequences. If not thought out in advance and handled properly, a
contractor’s selection of remedies can lead to a quagmire of “double
659. Id. at 20.
660. See FAR 31.201-5, which states: “The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor
shall be credited to the Government either as a cost reduction or by cash refund.”
661. Lockheed I, 664 F. Supp. 2d at 19.
662. Id. at 20.
663. Memorandum Order at 3–4, Lockheed Martin Corp. v. United States, No. 1:08-cv1160, ECF No. 43 (D.D.C. Feb. 18, 2010).
664. Id. at 5 (“Equitable considerations may be raised and dealt with later.”).
665. See History of the Federal Judiciary, FED. JUDICIAL CTR., http://www.fjc.gov/servlet/
nGetInfo?jid=2026&cid=999&ctype=na&instate=na [https://perma.cc/4NCV-3T6Y] (last visited July 6, 2016); Lockheed I, 664 F. Supp. 2d at 20.
666. See Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92 (D.D.C. 2014) [hereinafter Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).
667. Lockheed II, 35 F. Supp. 3d 92 at 110 & n.21 (stating that the issue is one of “first impression” and “looms large in any case where a major government contractor can sue the government for recovery of environmental response costs under CERCLA”).
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recovery” challenges that leave the contractor (and others in the industry) in
a weakened position.668
The primary issue presented in Lockheed II is whether a traditional CERCLA
allocation between a defense contractor and the U.S. government could be
“equitably” adjusted based on the contractor’s prior recovery of remediation
costs as allowable indirect costs.669 Judge Huvelle started the CERCLA allocation analysis with a fifty-fifty per capita baseline allocation between Lockheed
and the United States.670 The court then performed a “traditional equitable
allocation” using the “Gore” and “Torres” factors.671 The court evaluated the
relative benefits to the United States of the rocket work, the degree of control
of waste handling under Bestfoods, the degree of cooperation, the government’s
ownership of the wastes under the contracts, the ownership of property and
equipment, compliance with existing laws, and various contract provisions.672
Judge Huvelle concluded that under the traditional equitable allocation analysis,
the United States would be liable for twenty percent of past and future costs at
the LaBorde Canyon site, twenty-five percent of past and future costs at the
Potrero Canyon site, and thirty percent of past and future costs at the Redlands
site.673
Regarding the impact of allowability, Judge Huvelle agreed with Judge
Robertson that no risk of “double recovery” arose as a consequence of allowing Lockheed to recover CERCLA response costs from the government.674
Judge Huvelle observed that the “government has been complicit in designing the very [indirect cost recovery] system about which it so bitterly complains.”675 However, even though no double recovery existed, the court
noted three examples of unfair “economic benefit” or “windfalls” to Lockheed that would occur absent an equitable adjustment. Specifically, Lockheed would recover $10 million in attorney fees incurred in bringing its
CERCLA action against the U.S. government, $18 million dollars in mandatory prejudgment interest under CERCLA, and “substantial” additional
profit under its fixed-priced contracts with the government.676 Based on
668. See United States Opening Brief, supra note 627624, at 14, 16–18, 23 (alleging that
Lockheed’s CERCLA lawsuit is an “overt attempt” to “recover the exact same response costs
from the United States twice,” citing time-value of money complications, incomplete crediting,
increased profits on fixed-price contracts, windfalls of pre-judgment interest, and attorney’s
fees).
669. See Lockheed II, 35 F. Supp. 3d at 110.
670. Id. at 132.
671. Id. at 132–33.
672. Id. at 132–53.
673. Id. at 153.
674. Id. at 155 (“Thus, there is no ‘double recovery’ in the traditional sense because Lockheed
cannot recover more in response costs than it initially paid, and there is little potential for a windfall to the plaintiff from the crediting system.”).
675. Id. at 156.
676. Id. at 159–61. The DOSA allowability percentages applied to both cost-plus and fixedprice type contracts with the U.S. government and did not take into account the potential for a
significant CERCLA recovery from the U.S. government at some point in the future. If Lockheed received a share of past response costs from the United States, a significant percentage of
Legacy Costs of War and the “GOCO Model”
349
these three examples of “economic benefit” and because what is recoverable
under one system is not perfectly congruent with the other, the Lockheed II
court equitably reduced the U.S. government’s share of past cleanup costs
at all three sites to zero.677 The U.S. government’s “traditional equitable
allocation” of future costs remained largely intact, although the Lockheed II
court reduced this allocation by a “small equitable adjustment” of one percent at each site to reflect Lockheed’s high percentage of long-term fixedprice contracts.678 At the end of the Lockheed II court’s analysis, the United
States was held liable under CERCLA for no past costs, and nineteen percent, twenty-four percent, and twenty-nine percent in future costs at the
three sites.679
D. The Lockheed I and Lockheed II Appeal
The United States was generally pleased with the Lockheed II CERCLA
allocation outcome, but it continued to believe that Lockheed was improperly obtaining a “double recovery” of cleanup costs through allowability that
exceeded its nineteen percent to twenty-nine percent allocation.680 It appealed.681 According to the U.S. government, the United States was adjudged responsible for up to twenty-nine percent of the environmental
cleanup costs at the site, but it found itself reimbursing Lockheed for more
of the cleanup through allowability.682 As a result, Lockheed’s CERCLA
action against the United States was necessarily an attempt to secure additional recovery “from a party that has already paid more than its fair
share.”683 “Lockheed’s CERCLA suit is plainly an attempt to recover its environmental response costs for a second time.”684 In the government’s view,
the trial court erred by (1) not absolutely barring Lockheed’s action under
CERCLA’s “double recovery” prohibition, and (2) not fully crediting the payments the United States had already made to Lockheed under allowability
(amounting to fifty-five percent of total response costs) against the United
States’ equitable share.685
Lockheed, on the other hand, attempted to substitute one form of reimbursement for another and walked unwittingly into a “double recovery” trap.
Finding itself on the short end of Judge Huvelle’s CERCLA allocation decision in Lockheed II was painful enough, but Lockheed now found itself at
those funds would be directed towards reducing Lockheed’s overhead burdens on existing fixed
price contracts, which would, in turn, result in substantially increased profits to Lockheed on
those contracts.
677. Id. at 161.
678. Id. at 162.
679. Id.
680. See United States Opening Brief, supra note 627, at 50.
681. Id. at 23.
682. Id. at 1.
683. Id.
684. Id. at 38.
685. Id. at 22–23.
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risk of losing much more, with sweeping ramifications to the entire industry.
Oddly enough, Lockheed now had to defend the disappointing CERCLA
outcome in Lockheed II as “acceptable,” hoping not to lose more ground.686
To Lockheed and other contractors, the benefit of direct CERCLA reimbursement from the United States—no matter the amount—is that it compels payment of cleanup costs from the Judgment Fund rather than as additional overhead on the contractor’s existing and future government
contracts.687 That reduced overhead burden can, in turn, make the difference between the contractor winning and losing new business. According
to Lockheed, the “government’s real complaint about equitable allocation
seems to be that it will pay more for cleanup costs under contracts than it
is responsible for under CERCLA,” but that “is simply a function of the contracting system that the government itself created. . . .”688
Lockheed aptly described the potential consequences:
[A] ruling for the government would punish government contractors that have a
long history of cooperation with the United States on projects critical to the national defense, by requiring them to increase the costs of their goods and services
to account, not only for their own share of CERCLA cleanup costs, but also for
the government’s.689
Lockheed was not alone in its opposition to the United States’ “double
recovery” argument: the entire defense industry mobilized and aligned to
protect the “government contracting marketplace.”690 Industry groups
framed the core issue more broadly:
Put simply, the portion of remediation costs for which the government is responsible as a PRP is analytically distinct from the portion of the costs that are attributable to the contractor’s operations. The former should be paid by the government outside of the government’s contracts with Lockheed, while the latter
should be included in the contractor’s indirect cost pools as permitted under
the Federal Acquisition Regulations.691
The D.C. Circuit ultimately sided with Lockheed and the defense industry, rejecting the “double recovery” arguments.692 While the court was sympathetic to the government’s argument and the policy reasons underlying
that argument, the simple fact was that the district court’s CERCLA judgment did not create any sort of “double recovery.”693 Lockheed and the
686. Lockheed Brief, supra note 271, at 68–71, 72 (explaining why, although disappointed
with the CERCLA allocation, Lockheed chose not to appeal in the face of the government’s
“win”).
687. Id. at 53.
688. Id. at 26.
689. Id. at 54.
690. See Brief of Amici Curiae National Defense Industrial Association and Aerospace Industries Association of America, Inc. in Support of Plaintiff–Appellee at 5, 15, Lockheed Martin
Corp. v. United States, No. 14-5302 (D.C. Cir. filed June 22, 2015), ECF No. 1558991
[Amici Curiae Brief].
691. Id. at 16.
692. Lockheed Martin Corp. v. United States, 833 F.3d 225, 238 (D.C. Cir. 2016).
693. Id.
Legacy Costs of War and the “GOCO Model”
351
United States were each responsible for their own respective shares of
cleanup costs under CERCLA. But, the United States’ contractual agreement to reimburse Lockheed for Lockheed’s share through allowability did
not act to reduce the United States’ continuing liability for the government’s
share under CERCLA.694 The source of the government’s dissatisfaction
was that it played two separate roles in this case: first, as Lockheed’s ongoing
customer, and second, as a responsible party under CERCLA with a legal
duty to pay its own share of cleanup costs.695 As explained by the court:
“The reason the government will end up paying far more than its own [nineteen] to [twenty-nine] percent share of future costs is that it voluntarily
agreed to let Lockheed pass through its share, too.”696
The outcome of the Lockheed cases is important to the recovery of environmental costs in the defense industry for at least two reasons. First, the
D.C. Circuit’s decision confirms that defense contractors can recover their
own environmental costs through allowability—despite the practical drawbacks of that approach—without risking a CERCLA “double recovery” defense that would preclude later recovery of the government’s share of response costs. Second and related, however, is that a contractor’s recovery
of costs through allowability may result in certain “economic benefits”
that can later haunt the contractor in a CERCLA equitable allocation proceeding.697 Ultimately, the Lockheed cases affirm that multiple paths are
available to contractors seeking to recover their environmental costs from
the government, but the tortured path of the case is a cautionary tale to contractors that they must be careful when deciding which path to pursue and—
importantly—when to pursue those paths.
VII. U.S. GOVERNMENT GOCO SETTLEMENTS (POST-1997)
A. Government Funding of GOCO Facility Cleanups (Pre-1997)
Through at least 1997, the DoD had consistently funded 100 percent of
GOCO facility environmental cleanup (even at “mixed” privately and publicly owned war plants). In 1997, the GAO sharply criticized the DoD for
the escalating costs of GOCO facility cleanups and the lack of any effort
by the DoD services to try to recoup these costs in some manner.698
According to the GAO, before 1997, the DoD did virtually nothing to
shift the escalating costs of GOCO cleanups onto any of its contractors.699
694. See id. at 235–41.
695. Id. at 235.
696. Id. at 238.
697. Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 156–61 (D.D.C. 2014).
698. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 10 (noting that the DoD
has never followed through with the GAO’s recommendations in 1992 and 1994 for cost recovery against government contractors and has no clear policy).
699. Id. at 2 (stating that the Army has indemnified its contractor at ammunition plants, the
Navy has done nothing, and the Air Force is only beginning to seek contractor participation in
cleanup costs).
352
Public Contract Law Journal • Vol. 46, No. 2 • Winter 2017
For example, “Navy officials stated that the Navy is reluctant to pursue
GOCO contractors because of concerns they will pass costs back to the government as an allowable expense or through overhead charges.”700 The Navy
“also said that a divisive liability issue could slow cleanup operations and hurt
relations between the Navy and its contractors.”701 Subsequent history has
proven the Navy to be correct.
The Army looked no further than its own contracts and reasoned that “it
would be inappropriate to hold former contractors liable for the cleanup
costs because contamination resulted not from bad faith or willful misconduct, but from industrial practices that used to be considered acceptable.”702
The GAO noted a lack of consistency among the DoD services regarding efforts to recover costs from GOCO contractors.703 Unfortunately, the GAO
made no attempt whatsoever to evaluate or reconcile applicable government
contracts with its proposed policy. The takeaway from the GAO report was
simply for the DoD to pursue contractors to share costs. The GAO never
fully developed the potential legal and contractual shortcomings of that policy recommendation.
Essentially, the GAO complained that the DoD cleanup costs have continued to escalate and insisted that the DoD had to try something.704 The
DoD reminded the GAO (unsuccessfully) that a contractor’s cleanup costs
are 100 percent “allowable,” so cost recovery efforts do little more than
shift costs from one “federal budget” to another.705 Basically, the battle
foisted upon the DoD by the GAO in 1997 boiled down to which “federal
budget” (i.e., environmental or procurement) ought to fund the legacy
costs of war.706
Since the 1997 GAO report, the DoD has attempted to shift increasing
percentages of its environmental costs to its contractors, though not always
successfully. A significant number of contractors informed the government
that “cost sharing” would be out of the question.707 The first recovery of
cleanup money on behalf of the Navy occurred a decade later in 2007 in connection with the Navy-owned Allegheny Ballistics Laboratory in West
700. Id. at 5.
701. Id.
702. Id. at 16.
703. Id. at 3, 5, 8, 10.
704. See generally id.
705. Id. at 5–6.
706. See id. at 44. The GAO reported in 1997 that the Army followed no GOCO cost-sharing
policies for ammunition plants and generally indemnified its contractors for environmental liabilities. Similarly, neither the Navy nor the Air Force had ever obtained any cost-sharing agreements through 1997 at its GOCO facilities, and both the Navy and Air Force generally paid all
GOCO environmental costs either through direct funding or indirect program overhead. Id.
at 16.
707. See, e.g., Robert M. Howard, Latham & Watkins, Naval Air Systems Command Divestiture of Naval Weapons Industrial Reserve Plant No. 387 ( July 30, 1999) (drafted by author at
request of Northrop Grumman Corporation and objecting to any “ ‘voluntary’ cost sharing” at
NWIRP 387).
Legacy Costs of War and the “GOCO Model”
353
Virginia.708 With some exceptions, in the years immediately following 1997
negotiated allocations for GOCO facilities generally hovered around a
ninety percent–ten percent government–contractor split.709 The ten percent
allocated to the contractor potentially remained “allowable” or negotiated
away as consideration for some other benefit.710 The 2008 AFP 44 Arizona
settlement, for instance, reached a ninety percent–ten percent allocation and
allowed the contractor’s ten percent share of future costs to be reimbursed as
indirect charges.711 On the other hand, the 2008 NWIRP Fridley Minnesota
ninety percent–ten percent settlement capped certain reimbursable costs
comprising the contractor’s share as part of a larger sale of the facility to
the contractor.712 Over time, however, the government has pushed for
more and more allocations against contractors, moving the average allocation closer to fifty–fifty with no overhead reimbursement available for the
contractor’s negotiated share.
The July 2012 settlement at AFP 36 in Ohio is an example of a GOCO
settlement at a “scrambled” facility.713 The Ohio GOCO facility had a combination of government-owned and contractor-owned parcels.714 The Air
Force owned the southernmost sixty-six acres.715 The entire “Evendale
Plant” industrial complex totals about four hundred acres and specializes
in aircraft engines.716 At AFP 36, the contractor (General Electric) assumed
26.7% of past costs ($4 million of the $15 million in past costs) and thirtythree percent of future costs (estimated to be $13 million of a total of $40
million).717
Several factors make the AFP 36 allocation unique. General Electric
bought the GOCO facility from the government in 1989 (twenty-six years
708. Jesse Greenspan, Ex-Navy Contractor Pays $13M for Site Cleanup, LAW360 (Nov. 1, 2007),
http://www.law360.com/articles/39087/ex-navy-contractor-pays-13m-for-site-cleanup [https://
perma.cc/XD9R-G2W9] (“The Department of Justice, which filed a complaint and accompanying consent decree Wednesday in the U.S. District Court for the Northern District of West Virginia, said the settlement marked the first time it had recovered environmental cleanup costs
from a contractor on behalf of the Navy.”).
709. In those instances soon after 1997 where a 90%–10% allocation was not followed, the
departure from the norm was attributable to (1) caps imposed on aggregate contractor liability
(e.g., NWIRP St. Louis) or (2) the fact that the facility was in the process of being sold to the
contractor, and the allocation reflected the give-and-take of the purchase and sale negotiations
(e.g., AFP “PJKS” in Colorado).
710. See, e.g., Settlement Agreement and Administrative Order of Consent at 16, Air Force
Plant 44 v. Raytheon Co. (2008).
711. See id.
712. See Consent Decree at 17–19, 31, United States v. FMC Corp., No. 08-6240 (D. Minn.
Dec. 30, 2008).
713. Gen. Elec. Co. v. United States, No. 12-CV-484, slip op. at 1-2, 8, 29 (S.D. Ohio July 2,
2012).
714. See id.
715. Complaint at 2, Gen. Elec. Co. v. United States, No. 1:12-cv-00484 (S.D. Ohio filed
June 25, 2012).
716. Id. at 5 (the U.S. government once owned over 251 acres at the Evendale facility); Press
Release, General Electric Aviation, GE Aviation Renews Long-Term Commitment to Ohio
(Nov. 5, 2009) (today’s Evendale facility comprises 400 acres and 10 major buildings).
717. Gen. Elec. Co., No. 12-CV-484, slip op. at 2–3.
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Public Contract Law Journal • Vol. 46, No. 2 • Winter 2017
earlier) for $18.1 million.718 General Electric, however, felt pressure because
it was funding 100 percent of the cleanup of its privately owned facility and
sued the government. The plant had a substantially high percentage of commercial work.719 Estimated past and future cleanup costs of approximately
$55 million in total also are at the middle to lower end of the aggregate
cost scale for contaminated GOCO plants nationally.720
Under the circumstances, General Electric agreed to a higher percentage
allocation compared to other GOCO facilities because it meant, at most,
$4 million in past out-of-pocket expenses for a facility it already purchased
at a discount in 1989, coupled with the certainty of at least $26 million
from the government in future recovery and the possibility of $13 million
more in indirect reimbursement through contract overhead. The higher contractor percentage thus reflected a decision by both parties to structure the
agreement to remain silent on whether the contractor’s post-settlement
costs would be deemed allowable. In so doing, General Electric purposely
retained the right to seek such recovery of future costs if otherwise warranted
under the FAR.
B. The Handful of Post-1997 Environmental Cost-Allocation Agreements for
GOCO Plants Still Favor Contractors
Representative DoD settlements and informal environmental cleanup allocations at other GOCO plants entered into since 1997 are set forth in Appendix A of this article.
VIII. CONCLUSION
The “GOCO model” proved to be a silent strategic partner that helped win
the country’s wars. Yet today, the United States is walking away from that
proven structure under pressure by the GAO and others to shift the “costs
of war” to the U.S. government’s former contractors. That is a tragic defense
policy mistake that will eliminate the model’s availability for future use.
The existing allowability rules are a tremendous benefit to the industry
and the government, which still needs specialized products and options to
obtain those products. Although allowability rules may hurt overhead and
competitiveness at extremely expensive cleanups, changing course midstream can open the doors to “double recovery” arguments. Failing to vigorously defend indirect recovery and allowability will encourage the U.S. government to look for new ways to undermine this established pathway to pay
for the costs of war.
718. Complaint at 6, Gen. Elec. Co., No. 1:12-cv-00484.
719. See Air Force Plant 36, G LOBAL S ECURITY (May 7, 2011, 2:42 PM), http://www.
globalsecurity.org/military/facility/afp-36.htm [https://perma.cc/K6RT-CC6J].
720. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 34–35 (explaining that
the total cleanup cost at AFP 4 was estimated to be $79.6 million and the total cleanup cost at
AFP 44 was estimated to be $90.9 million).
Air Force Plant
“PJKS,” Jefferson
County, Colo.
Allegany Ballistics
Laboratory, Mineral
County, W. Va.
(Navy GOCO)
2.
Less than six percent
(capped at $3.5
million, and 100
percent allowable as
overhead)
Contractor(s) Share
See generally Consent Agreement, United States v. Lockheed Martin
Corp., No. 00-cv-562-DBS, 2000 EPA Consent LEXIS 44
(D. Colo. filed Mar. 14, 2000). PJKS involved a 464-acre GOCO,
sold to the contractor for $3.68 million. The Air Force assumed
$60 million in estimated past and future costs. The contractor
assumed $3.5 million in allowable overhead costs, capped at
$350,000 per year for ten years.
Notes/Citations
Hercules
ATK (1995–2011)
Continued
See Navy-ATK Settlement Agreement and Consent Decree, United
States v. Hercules, No. 07-cv-87-REM (N.D.W.V. Dec. 20, 2007),
Alliant Techsystems Approx. four percent ECF No. 12. Estimated $79.3 million in cleanup at 1,572-acre
(ATK)
(capped at $3 million “mixed use” Navy GOCO. From 1967 to 95, Hercules owned
adjacent manufacturing “Hercopel Plant” and imported waste to
over ten years, or
Navy GOCO. In an allocation agreement with ATK, ATK agreed
$0.3 million
to pay total capped amount of $3 million in future capital
per year)
improvements over ten years, capped costs at $300,000 annually in
Hercules (1945–95) the form of “allowable capital improvement expenditures” over ten
years (similar to in-kind rent).
The December 2007 settlement with Hercules for $12.95 million is
Approx. sixteen
unallowable. Total contractor cleanup costs are $15.95 million
percent
(twenty percent) of $79 million cleanup.
Lockheed Martin
Government-Owned
Plant
Contractor(s)
1.
No.
APPENDIX A: DoD GOCO SETTLEMENTS AND LEGACY ENVIRONMENTAL CLEANUP
ALLOCATIONS*
Air Force Plant 70,
Sacramento and
Azusa, Cal.
United Defense
Naval Industrial
(FMC)/BAE
Reserve Ordinance
Plant, Fridley, Minn.
4.
Aerojet-General
Corporation
Government-Owned
Plant
Contractor(s)
3.
No.
Less than
ten percent
Twelve percent
Contractor(s) Share
See generally Consent Decree, United States v. FMC Corp., No. 0:08cv-06240-ADM-JJK (D. Minn. Dec. 30, 2008), ECF No. 8.
Contractor allocation of $4.6 million as a global settlement with
two NWIRP Fridley contractors in conjunction with 2004
$6.5 million, eighty-acre GOCO sale to contractor (United
Defense). Id. at 15–16. Estimated $50 million in past and future
cleanup though 2020, mainly TCE in groundwater. Only $850,000
is deemed not reimbursable to contractor to avoid doublecounting. Id. at 17.
See Modification No. 1 to the 29 November 1992 Settlement
Agreement Between the United States and Aerojet-General
Corporation § 3.2, Aerojet-General Corp., ASBCA No. 40309, 1998
WL 35986918 (ASBCA Dec. 21, 1998). Eighty-eight percent of
“Site Restoration Costs” allowable and recoverable in direct costs
in forward pricing. Contractor’s litigation costs pursuing insurance
coverage is allowable. See Settlement Agreement § J(1) (Nov. 30,
1989). Over $62 million in costs. United States pays $36,840,000 in
1989 settlement. Id. § I(A)(1).
One or more facility contracts had indemnity for hazardous
activities from 1957–79. Aerojet purchased AFP 70 (liquid fuel
pocket manufacturing) for $7.5 million. AFP 70 in Sacramento was
built in 1957 comprised approximately 13,000 acres (only one
percent government-owned) and 372,000 square feet of buildings
(only seventy percent owned). Government’s production facilities
highly integrated into contractor’s. AFP 70 consisted of 52.44 acres
in Rancho Cordova, California.
Notes/Citations
Air Force Plant 14,
Burbank, Calif.
Air Force Plant 83,
Albuquerque, N.M.
6.
7.
General Electric
Lockheed Martin
McDonnell
Naval Weapons
Douglas/Boeing
Industrial Reserve
Plant, St. Louis, Mo.
Government-Owned
Plant
Contractor(s)
5.
No.
Nine percent
Fifty percent in
future costs
Forty percent to
fifty percent in past
soil costs
Forty percent
(capped at
$1,973,714
maximum)
Contractor(s) Share
Continued
See Consent Agreement ¶ J, United States v. Gen. Elec. Co., No. 09cv-545-JEC (D.N.M. Feb. 17, 2010). The Air Force assumed
ownership of thirty-three-acre, thirty-building GOCO facility in
1967 from Atomic Energy Commission. General Electric performed
both military and commercial work. General Electric became owner
of facility in 1984. The United States assumed ninety-one percent
(47.8%; U.S. Department of Energy (DOE) 43.2%) liability, and
General Electric assumed nine percent. Id. at 3. Total cleanup costs
for AFP 83 are approximately $4 million. Nine percent allocation to
contractor does not appear to be allowable.
See Consent Decree ¶¶ 3.2, 3.4, 4.1, 4.2, United States v. Lockheed
Martin Corp., No. 97-cv-4214-MRP (C.D. Cal. Jan. 20, 2000),
regarding settlement of former AFP owned by Lockheed since
1974. AFP 14 was a GOCO from 1947 through 1973. Government
exchanged Plancors for Lockheed’s Plant B-1. Government pays
contractor $265 million in past costs and fifty percent of estimated
$110 million in future costs. In 1997, Lockheed filed CERCLA
cost recovery suit seeking $500 million.
See Naval Weapons Industrial Reserve Plant, St. Louis, Missouri
Environmental Agreement ¶ VII ( July 2001). Contractor’s forty
percent share applies to maximum facility cleanup costs of
$4,934,285 at NWIRP St. Louis, or $1,973,714, allocated to the
contractor as part of GOCO site purchase agreement by
contractor. The capped $1,973,714 amount is not reimbursable
under contracts.
Notes/Citations
Naval Weapons
Industrial Reserve
Plant, Toledo, Ohio
Naval Weapons
Industrial Reserve
Plant, Bloomfield,
Conn.
9.
Approx. zero percent See Settlement Agreement Consent Decree, United States v. Kaman
Aerospace Corp., No. 08-cv-794-JBA (D. Conn. July 10, 2008). In
exchange for future (and unallowable) cleanup costs of $6 million to
$8 million, the eighty-five-acre Navy GOCO facility is conveyed to
the contractor. Id. ¶¶ 19, 27(b), 33. No other consideration is
provided. Kaman also owned property adjoining NWIRP and
performed a combination of DoD and commercial work. Prior to
conveyance, United States spent about three million. Id.,
Complaint ¶ 8, United States v. Kaman Aerospace Corp., No. 08-cv794-JBA (D. Conn. May 23, 2008). First $7.8 million in costs are
Kaman Aerospace
Corp.
See Proposed Consent Decree, United States v. Teledyne Tech., Inc.,
No. 08-cv-1085-DAK, (D. Ohio Apr. 29, 2008). United States
owned thirty-acre GOCO facility for engines since 1942. Congress
authorized no-cost transfer of GOCO to local port authority in
November 2002 and transfer took place only six months before
Navy could finish cleanup. Teledyne had been operator from 1955
to 2008. Navy assumed cleanup before transfer of facility under an
Economic Development Conveyance to Toledo-Lucas County
Port Authority. Port Authority agreed to complete cleanup under
Ohio laws pursuant to $2.45 million federal U.S. Department of
Defense (DoD) grant. United States complaint alleges Navy spent
$1.67 million in past costs, for $4.12 million in total past and future
costs ($1.67 million + $2.45 million). Complaint ¶ 12, United States
v. Teledyne Tech., Inc., No. 08-cv-1085-DAK, (D. Ohio Apr. 29,
2008); Proposed Consent Decree ¶ 12. Teledyne’s allocation is
$525,000 (12.7%). Contractor would assume cleanup responsibility
if Port Authority fails to perform. Contractors costs would be
treated as unallowable. Proposed Consent Decree ¶ 27(b).
Notes/Citations
Approx. twelve
percent to thirteen
percent
Contractor(s) Share
Teledyne
Government-Owned
Plant
Contractor(s)
8.
No.
Air Force Plant 36,
Evendale, Ohio
Air Force Plant 44,
Tucson, Ariz.
11.
Raytheon/
Hughes
General Electric
Government-Owned
Plant
Contractor(s)
10.
No.
Less than ten percent
(capped at twenty
million dollars, and
reimbursable)
26.7% of past costs
and thirty-three
percent of future
costs
Contractor(s) Share
Continued
See Air Force Plant 44 Settlement Agreement & Admin. Order on
Consent ¶¶ IV–VI (2008). The Air Force settlement set forth a 9010 allocation agreement between the United States and the
contractor for future costs; estimated past and future cleanup costs
exceeded $130 million through 2030; 1,365-acre active GOCO in
Tucson; Raytheon to pay up to $23 million maximum cap over time
(ten percent share allowable pursuant to December 2007 AFO 44
“Advance Agreement” ¶ IV(c)); $5 million in past costs allocated to
contractor to be paid semi-annually over ten years; up to $300,000
per year to be paid by contractor in future costs until $20 million
aggregate cap reached.
See Consent Decree ¶ IV, Gen. Elec. Co. v. United States, No. 12-cv484-MRB, (S.D. Ohio July 2, 2012), ECF No. 9. General Electric
filed CERCLA suit on June 25, 2012 to recover fifteen million
dollars in cleanup costs incurred by General Electric between 2001
and 2011. Sixty-six-acre AFP 36 facility was owned by United
States from 1940 to 1989, when it was sold to General Electric in
1989 (twenty-three years ago) for $18.1 million. GOCO Plant
comprises seventeen percent and southern tip of larger 400-acre
“Evendale Plant” industrial complex owned by General Electric
near Cincinnati. United States agrees to pay
$11 million of $15 million in past costs (73.3%) and
sixty-seven percent of all “future response costs” (approximately
$40 million) imposed by the U.S. Environmental Protection
Agency (EPA) and Ohio EPA. Facility performed military and
commercial work. Projected future cleanup around $40 million.
deemed unallowable under contracts. Kaman provides a $6.2
million performance guarantee and a $6 million indemnity
guarantee.
Notes/Citations
Naval Weapons
Industrial Reserve
Plant, McGregor,
Tex.
Department of
Energy GOCO,
Canaan, Conn.
13.
See generally Consent Decree, United States v. Hercules Inc., No. 11cv-267-WSS (W.D. Tex. Oct. 24, 2011), ECF. No. 2-1. Former
World War II-era, 9,700-acre Army, Air Force, then Navy GOCO.
Closed in 1995 and played leading role in solid fuel rocket motors
(Sidewinders, Sparrow, Phoenix). Two contractors pay $14 million
aggregate and joint payment by two contractors to United States
(all unallowable) for past, present, and future cleanup costs.
Id. ¶ 6. Navy reports $50 million in past costs through 2010 and
roughly $28 million in future costs ($78 million in total).
Perchlorate groundwater contamination impacting drinking water
of 500,000 people; formerly known as Blue Bonnet Ordnance Plant
and then became AFP 66 in 1950s and then NWIRP in 1966.
September 30, 2012 dismissal of U.S. claims against contractor
Conoco Phillips (1952–58) under government contract and statute
of limitations.
Sixteen to eighteen
percent
Zero percent
Twenty-three
percent
Hercules Inc.,
(1978-2001);
Rockwell
Automation
(1958–78)
ConocoPhillips
(1952–58)
New England
Lime Company
See Complaint ¶¶ 10–25, Mineral Techs. Inc. v. United States, No.
14-cv-1567-RNC, ECF No. 1 (D. Conn. filed Oct. 22, 2014), ECF
No. 1; Consent Decree ¶ 2, Mineral Techs.,
No. 14-cv-1567-RNC (D. Conn. Oct. 24, 2014), ECF
No. 11. Former DOE/Atomic Energy Commission GOCO owned
by United States for twenty-two years (1942–64) and 100 percent
privately owned for next fifty years. Facility produced metals in
support of U.S. atomic programs. United States pays $2.3 million
of three million dollars in PCBs and mercury cleanup costs.
Government-owned equipment that released PCBs and mercury
Notes/Citations
Contractor(s) Share
Government-Owned
Plant
Contractor(s)
12.
No.
Naval Industrial
Reserve Ordnance
Plant,
Pomona, Cal.
Naval Weapons
Industrial Reserve
Plant, Dallas, Tex.
Air Force Plant 3,
Tulsa, Okla.
Air Force Plant 13,
Wichita, Kan.
15.
16.
17.
Boeing
Rockwell
No formal cost-sharing agreement. Contractor costs reimbursed
through contracts.
Continued
Approx. fifty percent Settled Feb. 24, 2016. See Consent Decree, Boeing v. United States,
No. 16-cv-1061 (D. Kan. 2016). Also known as the Boeing Military
Aircraft Facility, Plancor 139, Plancor 140. GOCO operated from
World War II through 1979 and built B-29s, B-47s, and B-52s.
United States agrees to pay Boeing $32.25 million for past and
future costs, with all costs assumed by Boeing starting in fiscal year
2014 unallowable.
Zero percent
Active GOCO facility. Navy funding 100 percent of estimated $60
million to $70 million dollars in groundwater and soil remediation.
No cost-sharing agreement. No environmental costs are incurred
by current contractor.
Zero percent
Northrop
Grumman/ Vought
Aircraft/ Triumph
Aerostructures
(but not discovered until decades later in 2000). GOCO used to
supply magnesium metal for atomic energy and Manhattan Project.
United States sold GOCO facility in 1964 to Pfizer, after which
more releases of PCBs and mercury occurred from same equipment
Pfizer sold facility to plaintiff (alleged to be successor of original
GOCO contractor) in 1992 after twenty-eight years of ownership.
Contractor funded cleanup and then sues United States under
CERCLA for cost recovery. CERCLA allocation: seventy-seven
percent United States; twenty-three percent GOCO contractor.
Notes/Citations
Approximately $5 million cleanup in late 1990s. No formal costsharing agreement. Direct Navy payment and contractor costs
reimbursed through contracts.
Contractor(s) Share
Zero percent
Hughes/ General
Dynamics
Government-Owned
Plant
Contractor(s)
14.
No.
Lake City Army
Ammunition Plant
Newport Army
Ammunition Plant
Naval Ordnance
Station, Louisville,
Ky.
Raytheon
Naval Weapons
Industrial Reserve
Plant, Bedford, Mass.
20.
21.
22.
23.
Notes/Citations
Zero percent
Hughes/United
Defense
* Not an exhaustive list of GOCOs since 1997
Zero percent
Zero percent
Zero percent
Zero percent
Closed in 2000; $61 million in estimated costs funded directly by
Navy.
GOCO conveyed to local Kentucky authorities in 1996 and
“privatized” with same contractors. Contractors indemnified by the
DoD against environmental claims and costs.
Estimated $55 million in past and future cleanup costs. Direct
Army payments and contractor costs reimbursement.
Estimated $300+ million in past and future cleanup costs. Direct
Army payments and contractor costs reimbursement.
PCBs in soils. Cost-sharing agreement under negotiation.
Contractor costs reimbursed through contracts.
Approx. fifty percent Settled April 7, 2016. See Consent Decree in Boeing v. United States,
No. 16-cv-2416 (C.D. Cal. 2016). Also known as the Long Beach
Boeing “C-1” Facility. Mixed GOCO facility operated from World
War II through 2015 closure with significant commercial work.
United States agrees to pay Boeing $40.75 million for past and
future costs, with all costs assumed by Boeing starting in fiscal year
2014 unallowable.
Contractor(s) Share
DuPont/ FMC/
Uniroyal
Remington/Olin
Air Force Plant 59,
Lockheed Martin/
Broome County, N.Y. McDonnell
Douglas/BAE
19.
Boeing
Air Force Plant 15,
Long Beach, Calif.
Government-Owned
Plant
Contractor(s)
18.
No.